January Inflation Jumps as Federal Reserve’s Preferred Gauge Increases
Federal Reserve’s Inflation Measure Rises More Than Expected
The Federal Reserve’s preferred measure of inflation rose more than expected in January, triggering a Wall Street sell-off as investors weighed the prospect of interest rates staying higher for longer as the central bank fights stubborn price pressures. This article will look at the details of the inflation rise, the implications of the data, and provide a conclusion.
Details of the Inflation Rise
The personal consumption expenditures (PCE) price index, which measures how much consumers pay for goods and services, increased 0.6 percent monthly after rising 0.2 percent in December. The annual rate increased to 5.4 percent in January from an upwardly revised figure of 5.3 percent a month earlier. The so-called core PCE index, which strips out volatile food and energy costs and is the Fed’s preferred inflation metric, rose 0.6 percent in January, up from 0.4 percent in December. The annual rate increased to 4.7 percent from an upwardly revised figure of 4.6 percent in December, missing economists’ expectations for a moderation to 4.3 percent.
Implications of the Data
The figures were the latest in a string of new data releases, including on employment, retail sales, and other price gauges that have come in hotter than expected, prompting markets to factor in the prospect of US interest rates going higher and staying there for longer than they had expected. Following Friday’s figures, investors priced in a 39 percent chance of a half-point rate rise at the Fed’s March meeting, compared with an 18 percent likelihood a week ago, according to CME Group’s FedWatch tool. Bets on a quarter-point rise dropped from 82 percent to 61 percent over the same period.
On Friday, Cleveland Federal Reserve president Loretta Mester said the Fed should lean towards increasing interest rates to get inflation back down to the central bank’s 2 percent target. US president Joe Biden said that the latest figures showed that “we have made progress on inflation, but we have more work to do.” However, he insisted that the economy had “continued to progress since the data in this report,” pointing to a recent downward trend in petrol prices.
Stocks were under pressure on Friday as investors adjusted their interest rate expectations. The S&P 500 closed 1.1 percent lower on the day, taking the blue-chip index’s loss for the week to 2.7 percent, which marked the most significant weekly drop since December. The Nasdaq Composite finished Friday’s session 1.7 percent lower.
The inflation rise in January has triggered a Wall Street sell-off as investors weigh the implications of the data. The data suggests that US interest rates may rise and stay longer than expected as the Federal Reserve fights stubborn price pressures.
The inflation rise in January has significant implications for the US economy, and investors are adjusting their expectations accordingly. As a result, the Federal Reserve will need to take decisive action to ensure that inflation remains in check and that interest rates remain stable.