CPI Data Keeps Fed Rate Hike Expectations on Track
On Tuesday, the U.S. Bureau of Labor Statistics released the consumer price index (CPI) data for February, which showed headline inflation rose 0.4% over the month and 6% over the year.[0] This was in line with expectations and marked the smallest annual increase since September 2021.[1] Core CPI, which excludes food and energy costs, also rose 0.5% month-over-month, slightly higher than the 0.4% expected, and 5.5% year-over-year.[2]
The release of the CPI data buoyed the markets, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite Index all opening higher after the announcement. Additionally, treasury yields rose, with the 10-year Treasury yield up 11 basis points to 3.63% and the 2-year yield adding 30 basis points to 4.33%.[3]
The latest numbers are likely to keep the Federal Reserve's rate-setting committee on track to raise rates by 0.25 percentage points at its upcoming meeting March 21-22.[2] CME Group data shows that over 75% of traders are expecting a 25-basis-point-rate hike at the Fed's March meeting, while nearly 25% anticipate rates unchanged, a dramatic shift from last week.
The Federal Reserve has hiked interest rates by a cumulative 4.5% over the past year in an effort to quell inflation.[4] Last summer, consumer prices reached a 40-year high, with an approximate rate of 9.1%.[4] Last week, Jerome Powell, the Chairman of the Federal Reserve, informed the two congressional committees that if inflation does not decrease, the central bank is ready to increase interest rates beyond the expected levels.[5]
Meanwhile, Asia-Pacific markets ended the trading session in the red, led by losses in the U.S. banking sector.[6] At the close of the trading day, Hong Kong's Hang Seng, China's Shanghai Composite, and Shenzhen Component indices all experienced a decrease of 2.27%, 0.72%, and 0.78%, respectively.[6]
United Airlines Holdings Inc (UAL) slid more than -6% in pre-market trading after the company provided a pessimistic outlook for the first quarter of 2023, while Gitlab Inc (GTLB) plunged about -32% in pre-market trading after the company reported a weaker revenue forecast for the fiscal first quarter and year.[7]
Overall, the CPI data kept Fed rate hike expectations skewed towards a 25 basis point hike, with a 83.
0. “U.S. stocks open higher after headline CPI data show February inflation was in line with expectations” MarketWatch, 14 Mar. 2023, https://www.marketwatch.com/story/u-s-stocks-open-higher-after-headline-cpi-data-show-february-inflation-was-in-line-with-expectations-25db4863
1. “CPI watch: All eyes on inflation data for clues on Fed rate hike path” Seeking Alpha, 14 Mar. 2023, https://seekingalpha.com/news/3947139-cpi-watch-all-eyes-on-inflation-data-for-clues-on-fed-rate-hike-path
2. “Consumer prices rose 6 percent annually in February as inflation eased” The Hill, 14 Mar. 2023, https://thehill.com/business/3899251-consumer-prices-rose-6-percent-annually-in-february-as-inflation-eased/
3. “Dow Jones Rallies On Key Inflation Report; First Republic Surges 62% On Easing Bank Fears” Investor's Business Daily, 14 Mar. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-rise-ahead-of-key-inflation-report-first-republic-surges-43-on-easing-bank-fears/
4. “Inflation: February CPI expected to show slowest annual rise since September 2021” Yahoo News, 14 Mar. 2023, https://news.yahoo.com/inflation-report-february-cpi-data-march-14-105141134.html
5. “Inflation gauge increased 0.4% in February, as expected and up 6% from a year ago” CNBC, 14 Mar. 2023, https://www.cnbc.com/2023/03/14/cpi-inflation-february-2023-.html
6. “Stock Market News Today: Stocks Surge after Inflation Cools in February” TipRanks, 14 Mar. 2023, https://www.tipranks.com/news/stock-market-news-today-u-s-futures-trade-higher-ahead-of-cpi-data
7. “Stocks Move Higher Before the Open as Investors Await U.S. Inflation Data” Barchart, 14 Mar. 2023, https://www.barchart.com/story/news/15043283/stocks-move-higher-before-the-open-as-investors-await-u-s-inflation-data
