U. S. inflation shows signs of growth again in January
2023.02.25 02:05
U. S. inflation shows signs of growth again in January
By Kristina Sobol
Budrigannews.com – In January, consumer spending in the United States soared in tandem with strong income growth. However, inflation accelerated, raising concerns in the financial markets that the Federal Reserve may continue to raise interest rates into the summer.
After rising by 0.2 percent in December, the Federal Reserve’s personal consumption expenditures (PCE) price index increased by 0.6% in January. After rising by 5.3% in December, the PCE price index increased by 5.4% in the year to January.
After rising by 0.4% in December, the PCE price index increased by 0.6% without taking into account the volatile energy and food components. After rising by 4.6% in December, the so-called core PCE price index increased by 4.7% in January.
ACTION ON THE MARKET:
STOCKS: Futures on the US stock index continued to fall. BONDS: Yields on US Treasury bonds increased. FOREX: The dollar strengthened against the euro and the yen.
COMMENTS:
ALLSPRING GLOBAL INVESTMENTS, MENOMONEE FALLS, WISCONSIN, SENIOR INVESTMENT STRATEGIST BRIAN JACOBSEN
“In all honesty, I’m surprised that the PCE data surprised people. We were aware that retail sales in January exceeded expectations. The CPI data also showed that inflation was higher than expected. There were a few interesting details, such as the substantial increase in wages. When the February numbers are released, these strong January numbers probably turn around. Rather than a change in the trend, this is more like a speed bump on the road to deflation.
KEN MAHONEY, CEO of MAHONEY Asset Management (via email).
“So we’ve had higher CPI, higher PPI, and much higher PCE, and the quick response is a major whoosh down today,” the statement reads.
“The Fed dislikes the increase in spending that has occurred. The market sees this as a sign that they may continue to raise interest rates for a longer period of time because they are attempting to slow the economy in order to reduce inflation. We had a positive six-month CPI, so these higher consumer spending numbers must have been caused by something in the previous month or two.”
“Now it’s all about the data when the Fed says they are dependent on data. After falling earlier, the yield on the 10-year Treasury is now close to 4%, which puts pressure on risk assets. The dollar is stronger, and multinational corporations would prefer a weaker dollar for their earnings. The majority of major companies’ earnings have been pretty poor, and given the circumstances, it’s hard to see how higher valuations would make sense.”
“We have higher yields, lower market, and a risk-off move overall, with all indexes falling in the last three weeks on top of that. Since this is beginning to look less and less like a new bull market and more like a bounce or squeeze in a bear market, the bears must be cheering.
GENE GOLDMAN is the Chief Investment Officer at CETERA Investment Management in El Segundo, California.
“The headline and core PCE numbers were significantly higher than anticipated. The fact that the data have been extremely strong since the most recent Fed meeting is what most concerns us. The tone of the press conference would have been very different had the Fed had access to this information at the most recent meeting.
“The reaction of the market is appropriate. Stocks are falling as a result of this indication that the Fed will remain hawkish for a longer period of time than the market had anticipated.”
“While personal spending was higher than anticipated, the significant surprise was that the savings rate increased. Even though the data is old, it still shows that the economy was doing well. The Fed would have been more aggressive if they had known this.”
“I would say that 50 basis points are on the table, but we get a lot of data between now and the meeting in March. The dot plot will be more advanced.
“I expected the number to be hot and I think equities, having been fairly weak for the last five or six sessions, expected it to be a little high as well,” said RANDY FREDERICK, managing director, trading and derivatives, Charles Schwab, Texas. “It is.” That doesn’t surprise me because it’s consistent with what we’ve seen previously regarding the producer price index and the consumer price index. The likelihood of a rate increase in two meetings from now has already increased.
“I’d say at the very least right now, the probabilities are quite high we’re going to have three more quarter point rate hikes at the next three FOMC meetings. This just simply reinforces what the Fed funds futures markets have already been telling us for the last couple of weeks, which is that while we did see somewhat of a pause in inflation, it’s certainly not over and now we’re actually seeing a little bit of a rebound in it,” “I’d say at the very minimum right
The conclusion is that the economy is still solidly expanding. This is yet another indication that inflation will remain stubborn in early 2023, making it more likely that the Federal Reserve will maintain its current policy of raising interest rates for a longer period of time.”
“The Fed will put more pressure on the brake pedal this year to slow momentum the stickier inflation is in early 2023. This adds to the growing body of evidence that the Fed will raise interest rates more aggressively, which hurts risk assets.
“The front end makes sense that the yield curve is flattening. The Fed is still under a lot of pressure. The Fed is under more and more pressure as a result of this. It is evident that they need to work on slowing down the economy and bringing inflation back to 2%.”
“This is not good news for risk assets because it will continue to put pressure on the Fed,” says the author.
“It could put pressure on them to go 50 basis points in March.” That will be the subject of market debate. Are they making the hikes bigger? That will be the primary focus.
“This PCE number, which is the Fed’s primary preferred gauge of measuring inflation clearly suggests that the Fed has more to do, now you’re looking at probably half of 1% rise in March,” said PHIL BLANCATO, chief executive officer at LADENBURG THALMANN ASSET MANAGEMENT in New York. “They (the Federal Reserve) are dependent on data, and they are being cautious not to overstep, but there is a good chance of a 1/2 percent (hike) in March, followed by what appears to be a rise in May or June. “In other words, this indicates that the Fed is not finished, that the fight against inflation has not yet been won, that yields will continue to rise, and that the stock market will be volatile.”
Peter Cardillo is the Chief Market Economist for SPARTAN Capital Securities in New York.
The number is higher than anticipated. Yields will be under pressure, and stock futures will fall.
The Federal Reserve is likely to become more hawkish. It remains to be seen whether that will result in a rate increase of fifty basis points in March. However, the tightening cycle is likely to end in the second half of the year, and there will likely be three more rate increases.”
“We should expect hawkishness until the second half of the year,” according to the Fed. “These are ugly numbers.”
“The economy is still doing well. The customer is the surprising element. Customers are spending.”
