The data relating to US inflation measured by the consumer price index fails to appease investors’ anxiety about the next moves by Jerome Powell’s Fed.
After an initially positive reaction, selling is back on Wall Street. Evidently traders and investors continue to fear that the US central bank still has a lot of work to do to reverse the jump in inflation. At 4 pm Italian time, the Dow Jones tries to grab the plus sign without too much conviction, while the S&P 500 and the Nasdaq lose 0.25% and 0.55% respectively.
Even the words of Philadelphia Fed president Patrick Harker are not enough, who said he believed that the US central bank could further reduce the extent of its monetary tightening.
“I think we will raise interest rates a few more times this year – said Harker – However, in my view, the days of raising rates to the low 75 points are definitely behind us. I think 25 basis point rate hikes are appropriate, looking forward.”
The head of the Philadelphia Fed also said that, “at some point this year, I expect rates to be tight enough for us to keep them unchanged, allowing monetary policy to do its job.”
But investors are now looking more to the terminal rate than to the extent of the monetary tightening.
Among other things, the weekly report on the initial claims for unemployment benefits highlighted a US labor market that remains solid. And the problem is that the Fed has set as a condition the weakening of employment, and therefore of the economy, as a result of inflation, to say stop the rate hike.
Last week, the number of American workers filing for first-time jobless benefits fell by 1,000 to 205,000, better than the 215,000 expected by the analyst consensus.
Looking in detail at the US inflation numbers that have just been released, the positive thing is that the slowdown in the growth of the consumer price index continues.
On a month-to-month basis, however, core inflation reared its head in December at a stronger pace than in November.
To be precise, the headline CPI was up 6.5% year over year, compared to +7.1% the previous month.
The figure was roughly in line with expectations, as analysts polled by Bloomberg had forecast a headline CPI consumer price index up 6.6% year-on-year.
Month-on-month, inflation fell by 0.1% MoM, more than the expected flat trend.
Also slowing down on an annual basis was the growth of core inflation, i.e. inflation excluding the more volatile components represented by the prices of food and energy goods, which slowed down from 6% to 5.7%, as expected .
However, the core CPI rose on a monthly basis by 0.3%, as expected, and accelerating from +0.2% m/m in November.
After an initial drop that even led them to drop below the 3.5% threshold, rates on 10-year Treasuries thus turn upwards, climbing up to 3.565%.
However, rates on 2-year Treasuries, which had also declined, remain under pressure at 4.184%.
The US dollar moved little, with the euro-dollar ratio falling to $1.0752. However, the greenback rose against the pound, with the GBP-USD down about 0.32% to $1.2099.
Marked decline of the dollar against the yen: the USD-JPY ratio loses 1.3% to JPY 130.62.