Home » Summary|Inflation rises more than expected, and the outlook for the Fed to cut interest rates is uncertain

Summary|Inflation rises more than expected, and the outlook for the Fed to cut interest rates is uncertain

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U.S. inflation surge raises uncertainty over Fed’s monetary policy

The U.S. consumer price index (CPI) rose more than expected in January, leading to increased uncertainty about the direction of the Federal Reserve’s monetary policy. Economists are now predicting that the Federal Reserve may cut interest rates later, with the intensity of the rate cuts possibly being reduced.

Data released by the U.S. Department of Labor on the 13th revealed that the U.S. CPI rose 0.3% month-on-month in January, marking the largest increase since September last year. On a year-on-year basis, it rose by 3.1%, well above the 2% long-term inflation target set by the Federal Reserve and also higher than the market consensus of 2.9%. Excluding volatile food and energy prices, the core CPI rose 0.4% month-on-month, higher than market expectations of 0.3%, with the year-on-year increase at 3.9%, also exceeding market expectations.

Following the release of the CPI data, the market expected that the probability of the Federal Reserve maintaining interest rates at the monetary policy meeting in March this year rose to more than 90%. Additionally, it was expected to cut interest rates by 25 basis points at the May meeting, with a probability dropping to less than 35%, and the probability of maintaining interest rates exceeding 60%.

Bank of America Global Research stated that the day’s CPI data further strengthened concerns about inflationary pressures caused by tight labor markets and, as a result, the possibility of the Federal Reserve cutting interest rates in March and May has declined, with expectations for an interest rate cut now shifted to June.

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Casey Jones, head of fixed income business at US brokerage firm Charles Schwab, believes that the Fed will view the latest CPI data as a reason to wait until May or June before cutting interest rates.

Market analyst James Helchik added that the direction of the Fed’s monetary policy has become more uncertain, leading to a dampening of sentiment in the stock market. The three major stock indexes in the New York stock market opened significantly lower on the 13th, continued to weaken during the session, and fell significantly at the close.

As of the close of the day, the Dow Jones Industrial Average fell 524.63 points from the previous trading day to close at 38272.75 points, a decrease of 1.35%; the S&P 500 Stock Index fell 68.67 points to close at 4953.17 points, a decrease of 1.37%; Nasdaq The Gram Composite Index fell 286.95 points to close at 15655.60 points, a decrease of 1.80%.

Thomas Martin, senior portfolio manager at Globolt Investment Company in the United States, said that the stock market decline after the release of inflation data was an “instinctive reaction” among investors. Although the latest inflation data is somewhat worrying, it will not change the overall direction of cooling inflation.

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