That lack of a flat pancake is according to Nick Chatters, Fixed Income Investment Manager at Aegon Asset Management, as he shared his reaction to today’s news from across the pond commenting:
‘Shrove Tuesday’s US inflation print was not the flat pancake that Jay Powell had been hoping for. The headline rate came in at 3.1% for the last year, above the 2.9% expected – now no one can run around with headlines of inflation starting with a 2!
‘The argument he sold the market at the last FOMC meeting was that rates could still be cut this year despite a strong economy, if inflation continued its grind lower. After a string of upside surprises in the economic data this year, todays CPI print makes the Fed message look a bit like a house of straw, waiting for the inflation wolf to come knocking.’
According to Priscilla Chueng, Investment Specialist at Brooks Macdonald, whilst inflation is slowing, it’s not quick enough for the Fed to change stance as she comments:
“Inflation is slowing down, but not quickly enough for rate cuts in the near term. The market was surprised by today’s CPI print, which exceeded forecasters’ expectations. The core CPI, which excludes food and energy prices, rose by 3.9% year-over-year, slightly higher than the predicted 3.7%. The headline CPI, which includes all items, dropped to 3.1%, but remains above the forecasted 2.9%. Given this, Powell and the Fed are likely to maintain their hawkish outlook”.
John Leiper, Chief Investment Officer at Titan Asset Management, sees the odds of a May interest rate cut by the Fed reducing as he shares his reaction to the inflation news as follows:
“Expectations were for a continuation of the disinflationary trend with headline and core inflation slowing. However, a plethora of recent economic data, including leading indicators for wages, highlight ongoing inflationary pressures. We saw signs of that in today’s numbers. Headline inflation fell slightly during the year but came in above expectations whilst core inflation, which strips out volatile food and energy, rose during the month and remained unchanged over the year but ahead of expectations. Markets were pricing in a 50% probability of a May rut cut, down from 95% two weeks ago. Odds have reduced further following publication of today’s data. As a result, bond yields are rising, driven by the front end of the curve, and equity futures are down.”
Rob Clarry, Investment Strategist Evelyn Partners, also thinks today’s data might just push back expectations of a Fed rate cut as he says:
“The January inflation data surprised to the upside, with both CPI and core CPI coming in higher than expected. Shelter and food prices continued to rise in January, increasing 0.6 percent and 0.4 percent, respectively. In contrast, the energy index fell 0.9 percent over the month due in large part to the decline in the gasoline index.
“With the Federal Reserve currently deciding monetary policy based on the incoming data, it looks like this print will push back the timeline for interest rate cuts. It comes on the back of stronger-than-expected economic growth, a big upside surprise from the January US jobs report, and resilient wage growth.
“Traders now expect around four interest rates cuts in 2024, which is down from the six expected just over a month ago. Similarly, they have pushed back their expectations of when the first cut will take place – assigning a 30% chance of a cut at the May meeting, which is down from 85% in December.
“Bond yields rose and the dollar strengthened in response to this hot CPI print. “
Richard Garland, Chief Investment Strategist at Omnis Investments, sees a bumpy path ahead commenting:
“US inflation is still trending down, despite this print missing expectations. The path is going to be bumpy but some of the stickier service sector elements should now start contributing to the fall, given wage growth is moderating. The Fed is keen not to make a mistake and wants confirmation of this before committing to a reduction in interest rates, meaning a March cut is all but written off. However, this eagerness may itself prove to be a mistake, if interest rates are held too high for too long.”
