US Inflation Rate Runs Hot In January, Puts Fed Rate Cut Bets In Jeopardy

The inflation rate dipped in January 2024, but missed the decline forecasted by economists.

Overall price pressures increased at a 3.1% annual pace last month, data from the Bureau of Labor statistics showed Tuesday, representing a notable drop from the previous reading but coming in higher than the expected 2.9% rate.

Key Highlights From The January Inflation Report:

• The annual Consumer Price Index inflation rate fell to 3.1% in January 2024, down from the previous 3.4% but missing the expected decline to 2.9%.
• On a monthly basis, the CPI increased by 0.3%, accelerating from the expected and previous 0.2%.
• The annual core CPI inflation rate, which excludes price pressures on food and energy items, held steady at 3.8%, matching December's figures but missing the expected drop to 3.7%.
• On a monthly basis, the core CPI increased by 0.4%, above December's figures and economist predictions of 0.3%.
• In January, the shelter index continued its upward trajectory, rising 0.6% and contributing over two thirds of the overall inflation surge.
• The food index also experienced a 0.4% increase, with the food at home index rising by the same margin and the food away from home index increasing by 0.5%.
• Conversely, the energy index decreased by 0.9% during the month, primarily driven by a decline in the gasoline index.

Market Reactions

Before the release of the inflation report, traders had factored in an 85% probability of no change in the policy rate in March, a 60% likelihood of interest rate cuts by May, and a total of 118 basis points in cumulative cuts by December 2024, equivalent to just under five rate reductions of 25 basis points each.

Traders sharply unwinded Fed rate cut bets following the inflation data. Money markets now price in less than 100 basis points of easing in 2024, equalling to less than four rate cuts.

The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF UUP, rose sharply following the reading.

U.S. equity futures traded lower premarket Tuesday and extended drops following the inflation release.

Futures on the S&P 500 were 1.4% down, while contracts on the Nasdaq 100 dropped 1.8%, at 9 a.m. in New York.

Among stock movers during the premarket, Palantir Technologies Inc. PLTR fell 5.5%, Shopify Inc. SHOP dropped 12% and ARM Holdings ARM was down by 14%, according to Benzinga Pro data.

Read now: Nasdaq, S&P 500 Set For Weaker Open As Traders Keep Eyes Peeled On Inflation Data: Analyst Flags Key CPI Report Item To Watch

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