Saturday Night Quarterback says, For the week ahead expect…
I expect less drama than markets now fear from Wednesday’s meeting of the Federal Reserve’s interest-rate-setting Open Market Committee.
Inflation comes in a bit better than expected–but not enough to lead to an interest rate cut or to push stocks decisively higher
This morning’s report on Consumer Price Index (CPI) inflation came in better than expected by economists. On a monthly basis, the all-items or headline inflation rate rose just 0.2% last month. That’s lower than economists’ expectations and a drop from a large 0.5% increase in January. Core inflation, which strips out volatile food and energy prices, also rose just 0.2% on a monthly basis, down from a 0.4% rise in January. Core prices were up 3.1% for the year, an improvement from the prior month. Headline or all-items Consumer Price Index (CPI) inflation rose at a 2.8% annual rate in February. Three reasons not to feel astoundingly optimistic about these numbers.
It’s not the R word that has stocks plunging–it’s that S word
We haven’t had a really severe bout of stagflation since the late 1970s and early 1980s–but suddenly that scenario of very slow growth with high unemployment but with high inflation too that prevents the Federal Reserve from just cutting interest rates get growth back on track is back on Wall Street’s worry list.
And really serious stagflation would be something to worry about. In 1980–just before the Federal Reserve created a deep recession and bear market to break the back of stagflation–inflation hit almost 14.5 and unemployment reached 7.5%
Friday’s trade makes it clear what market fears: an economic slowdown
Just minutes after a slide that drove the S&P 500 down over 1%, the gauge staged an “oversold bounce” after Federal Reserve Chair Jerome Powell told a New York audience that the economy is fine. “Despite elevated levels of uncertainty, the US economy continues to be in a good place,” Powell said at an event Friday in New York hosted by the University of Chicago Booth School of Business. “We do not need to be in a hurry, and are well positioned to wait for greater clarity.”
Saturday Night Quarterback says, For the week ahead expect…
I see the beginning of two weeks of extraordinary volatility. Look what’s on deck.
Saturday Night Quarterback (Part 2) says, For the week ahead expect…
The Federal Reserve’s preferred inflation metric–due Friday–is expected to cool to the slowest pace since June. But while I think markets will cheer, it’s too soon to look for any change from the Federal Reserve on interest rate cuts. That will have to wait until April at least the the central bank will get a better idea of exactly what tariffs President Donald Trump will increase and by how much.
Bond traders move to price in just one interest rate cut in 2025
Bond traders pushed out bets for the next Federal Reserve interest-rate cut to December on today’s increase in the CPI inflation rate. Swap contracts linked to future Fed decisions had before today anticipated a rate cut by September. Today’s swap pricing implies just one quarter-point cut this year. The yield on benchmark 10-year Treasury closed the day up 9 basis points to 4.62%%. Two-year Treasury yields, more sensitive than longer-maturity debt to Fed rate moves, rose by 7 basis points to 4.35%. “How can anyone justify any rate cuts with such inflationary pressure?,” Roger Landucci, a partner at Alphamatrix Finance in Geneva, told Bloomberg.
Oh, no! CPI inflation edged higher in January
CPI inflation rose by more than expected in January, as prices for groceries, housing and energy all picked up. The headline, all-items Consumer Price Index rose by 3.0% in January from a year earlier, the Labor Department reported Wednesday morning. That’s slightly above the 2.9% annual rate reported in December. The core index, which strips out volatile food and energy prices, was also higher, showing a 3.3% annual rate.
Saturday Night Quarterback (on a Sunday) says, For the week ahead expect…
The Consumer Price Index inflation report, due from the Bureau of Labor Statistics on Wednesday morning, is forecast to show that the core consumer price index, which excludes food and energy prices, rose 0.3% in January for the fifth time in the last six months. Compared with a year earlier, core CPI is forecast to have risen 3.1%
Job growth in January slower but still steady
The U.S. economy added 143,000 jobs in January, a slower but solid pace that was a tick below economist forecasts. The unemployment rate dipped to 4%. The labor market slowed compared to December. That December report was revised Friday to show 307,000 jobs gained that month. Average hourly wage growth accelerated, rising by 4.1% rate over the past 12 months. That wage gain was above the rate of inflation.
Please watch my new YouTube video: The Fed is caught between a rock and a hard place
Today’s video is the Fed is between a rock and a hard place. Inflation has been stuck around 2.8% and the Fed would like to get it down to 2%. In January, the Fed paused any movement on interest rates but Wall Street remained hopeful for two cuts in 2025. The March 19 meeting will include a dot plot that will outline whether or not the central bank is thinking about any cuts for 2025. The problem is the Fed doesn’t know where the economy is going. There are too many uncertainties surrounding constantly changing Trump tariffs as well as the expected tax cut bill (which will result in higher yields and a market and economic stimulus). The budget also remains an unanswered question. These uncertainties, with the Fed also under huge political pressure from the Trump administration to make interest rate cuts, catch the Fed between a rock and a hard place and we won’t know how the Fed plans to address its dilemma until March.
No good new for Fed interest rate cuts in today’s inflation data
Today’s release of the PCE (Personal Consumption Expenditure) index, the Federal Reserve’s preferred inflation measure, wasn’t good news for investors hoping that the central bank will quickly resume interest rate cuts. The PCE climbed 2.6% in December from a year earlier, faster than its 2.4% annual rate in November and above the central bank’s 2 percent target. Compared to the previous month, prices were up 0.3%.
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