“The Consumer Price Index for All Urban Consumers increased 0.3 percent in January on a seasonally adjusted basis, after rising 0.2 percent in December, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.1 percent before seasonal adjustment”.
The numbers revealed that inflationary pressures last month came in 1/10 of a point more than economists’ expectations. A higher-than-expected rise in inflation last month could easily change the timing of rate cuts by the Federal Reserve. More so, it raises a small, but real possibility that the Federal Reserve might raise rates before pivoting to rate cuts. However, for that to happen, inflation would have to come in hotter than expected in February.
Powell also remarked that a rate cut in March would be highly unlikely and today’s inflationary numbers reinforce that decision making the most likely first rate cut to possibly occur in May, but more likely in June. According to the CME’s FedWatch tool, there is only an 8.5% probability that the Federal Reserve will cut rates in March, and a 32.3% probability of a rate cut in May. That changes in June with a 52.7% probability that the Fed will have cut rates by ¼%, an 18.
Higher yields on treasury debt moved the dollar substantially higher. The dollar opened at 104.156 and traded to a high of 105.001, and as of 4:45 PM ET, the dollar index is currently trading at 104.911 after factoring in today’s gain of 0.72%.
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