Pristine Inflation Data Is Too Much to Expect
Inherently volatile CPI readings will create plenty of landmines for traders expecting the Federal Reserve to cut rates to around 4% this year from 5.5%.
Easy does it.
Photographer: Samuel Corum/Bloomberg
The Federal Reserve is likely to cut policy rates this year less than the market expects, and the latest inflation report shows why. The consumer price index rose 0.3% in December from a month earlier, pushing the six-month annualized rate up to 3.2%, from a previous 2.9%. Although it was basically a fine report, it wasn’t pristine — and the market is priced for pristine.
As of the time of writing, futures trading suggests that the Fed will make roughly six 25 basis-point cuts in 2024. Come on! Fed policymakers — who hate to surprise markets — have done little to prime investors for such an easing cycle, so there’s almost no chance that they will start at the meeting later this month. Federal Reserve Bank of Cleveland President Loretta Mester told Bloomberg’s Michael McKee on Bloomberg TV Thursday that “March is probably too early.” After that, the Fed’s rate-setting committee only has six meetings left in the year, and the market is effectively saying the committee will cut at all of them.