CPI Report Could Challenge Market Expectations of Fed Rate Cuts
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Forecasts show overall inflation rising slightly in December but core inflation continuing to slow down. This supports the Fed's view that they are winning the battle against inflation.
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Investors are looking for signs of slower inflation in the CPI report, which would support Fed interest rate cuts in March. However, some analysts believe rates may remain on hold longer than markets expect.
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Goods inflation has dropped rapidly, but services inflation remains sticky due to high rent prices. Analysts expect evidence of falling rents in coming months.
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Markets are pricing in about 5 Fed rate cuts starting in March 2024. A hotter CPI report could lead the Fed to delay cuts.
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Fed communication in recent weeks implies officials may keep rates on hold longer than markets anticipate, which could move markets more than the CPI report.