Pacer ETF Distributor President Sean O’Hara talks about earnings season, the response to the Federal Reserve rate cut, and upcoming CPI and PPI reporting.
Inflation has risen faster than expected at the start of the year, throwing a damper on Wall Street, which was hoping for an imminent government rate cut. federal reserve.
of consumer price indexPrices, a broad measure of the price of everyday items such as gasoline, food and rent, rose across the board in January, spooking investors and sparking a widespread market selloff.
Surprisingly strong inflation numbers have all but eliminated the already slim chance of a March rate cut, and further reduced the chance of a May rate cut to just 30%, according to the FedWatch tool, which tracks CME Group trade. .
Fed leaves interest rates unchanged, indicating it is not ready to start cutting rates
Federal Reserve Chairman Jerome Powell attends a press conference on November 2, 2022 in Washington, DC. (Liu Jie/Via Xinhua/Getty Images)
“January core CPI was better than expected, and Fed rate cuts remain ‘off the menu’ for now,” said Bryce Doty, senior vice president at Sitt Investment Associates. “The real federal funds rate remains restrictive, but that alone will not be enough to prompt the Fed to cut rates until there is greater confidence that inflation is fully under control.”
of federal reserve As policymakers try to decide what happens next with interest rates in 2024, they indicated they are closely monitoring the report for evidence that inflation continues to subside.
Central bank officials paved the way for a rate cut this year at a meeting in January, but bounced back against positive market expectations.
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Chairman Jerome Powell He told reporters after the meeting that a rate cut in March may be off the table because policymakers are not sufficiently confident that inflation is on track to return to 2%. said that it was high.
“Given today’s meeting, I think it’s unlikely that the committee will reach a level of confidence by the March meeting to identify March as that period. But we’ll wait and see,” Powell said at the time. .
People shop in the food section of a retail store on January 19, 2024 in Rosemead, California. (Frederick J. Brown/via AFP/Getty Images)
Although inflation has fallen significantly from its peak of 9.1%, progress toward the Fed’s 2% goal has slowed significantly in recent months. The inflation rate in January increased by 0.3% from the previous month and by 3.1% compared to the same period last year. Both numbers are higher than expected.
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Elsewhere in the report, inflation is slow to recede. Core prices, which exclude more volatile measures of food and energy, rose 0.4%, the biggest monthly increase since April 2023. It rose 3.9% for the year. Both of these numbers are slightly higher than estimates.
“The last mile to the Fed’s 2% target is always going to be slow, volatile and frustrating,” said Seema Shah, chief global strategist at Principal Asset Management. “But what today’s report highlights is that without a cooling of the labor market and economy, inflation is likely to stop moving forward, although a March interest rate cut is completely off the table. , which could still materialize in May if economic activity continues.”The effects of previous Fed tightening are finally starting to show. ”
