Recently released U.S. inflation data showed that the Consumer Index (CPI) in January was 3 year-on-year1%, higher than the market expectation of 29%, which is also far beyond the Fed's target of 2%. In addition, the CPI increased by 03%, the highest since September 2023. These data reflect that inflationary pressures in the United States remain and have important implications for the market and the Fed's policy direction.
Meanwhile, the Producers** Index (PPI) came in at 09%, higher than the market expectation of 06% with a monthly rate of 03%, the highest since August last year, further exacerbated market concerns about the persistence of inflation. While the Fed has made some progress in fighting inflation, the latest data suggests that the path of inflation down may be more complex and longer than expected.
The statement of the head of the Federal Reserve Bank of Atlanta, Rafael Bostic, showed that the Fed is in no hurry to cut interest rates as the US labor market and economy remain strong. He stressed that more data is needed to confirm whether inflation is sustainably moving towards the 2% target. Although the Fed was expected to cut interest rates for the first time in the third quarter of this year, the latest inflation data has challenged this expectation.
The comments from San Francisco Fed President Daly and Richmond Fed President Barkin also reflect Fed policymakers' desire to see more evidence that inflation is continuing to decline before cutting interest rates. This suggests that in the near term, the Fed is likely to remain cautious and watch more data to determine the next policy move.
Comments from former US Treasury Secretary Summers further underscored the persistence of inflationary pressures, with him suggesting that the Fed's next move could be to raise rather than lower interest rates. Summers' analysis notes that while one month's data should not be over-interpreted, the latest inflation data suggests that the downward path for inflation may not be as smooth as expected.
Despite the Fed's progress in fighting inflation, the latest data shows that inflationary pressures remain, which could influence the Fed's future policy decisions. Policymakers need to find a balance between boosting economic growth and controlling inflation, while keeping a close eye on data changes to make timely policy adjustments. For investors, this means that the market may remain uncertain for the foreseeable future, requiring vigilance and timely adjustment of investment strategies.