Investors still expect Fed to cut rates soon despite two reports showing inflation went up

Investors are shrugging off two reports this week that showed annual inflation ticked up last month, betting that the Federal Reserve will still soon cut interest rates.

The first and most closely watched report, the consumer price index, indicated that inflation ticked up to 3.4% for the year ending in December 2023, up from 3.1% the month before and hotter than economists had predicted. The producer price index, which gauges wholesale inflation, rose to 1% from 0.8% the month before.

On a monthly basis, which offers a more precise look at where inflation is, the CPI rose 0.3% in December. Crucially, the Fed sees healthy annual inflation being 2% price growth, so the uptick is unwelcome.

But investors brushed off the slight upswing in inflation and are still expecting the Fed’s first
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