By
Steve Muchoki
February 14th, 2024
The incoming CPI report is less likely to affect the Federal reserve’s meeting, but it may indicate a longer-term trajectory for interest rates.
Prices of goods and services continue to surge even though economists expected that consumer inflation probably dropped in November. Fingers are crossed as hopes are high that November consumer inflation could show cooling signs when the consumer price index is released. The report is expected to be out by 8:30 a.m. ET on Tuesday, with the Federal Reserve kick-starting the two-day meeting.
Economists’ Expectation on November Consumer Inflation
According to Dow Jones, economists expected the consumer price index to likely add 0.3% in November, or at an annual pace of 7.3%. That figure would be a reduction from the 7.7% recorded in October. The economists also expected core CPI, minus food and energy, to increase 0.3%, or 6.1% YoY. Meanwhile, Dow Jones revealed a 0.3% gain or an annual rate of 6.3% in October. As the Fed’s meeting approaches, the central bank is expected to add 0.5 points to rates by Wednesday. At the same time, economists are mostly executing the Federal Reserve to maintain the 50 basis point increase regardless of the consumer price index report.
The head of US rate strategy at the Bank of America Merrill Lynch, Mark Cabana, wrote:
“I think if the market sees something in line, all is good. If the theme holds, rates [bond yields] probably still decline a bit. But if we see something that surprises to the upside, I think that would generate a more sizeable market response because it would be questioning the theme the market has really latched on to – which is that inflation has peaked.”
Currently, the Fed funds target range is 3.75% to 4%, but economists expect the Fed to continue to raise interest rates until it reaches 5% or a little more. The incoming CPI report is less likely to affect the Federal reserve’s meeting, but it may indicate a longer-term trajectory for interest rates. Ahead of the release of the November inflation report, Treasury yields were high on Monday, the same as stocks. The 2-year note yield grew 0.005 of a percentage point to 4.39%. After the Fed releases its policy statement and latest economic and interest rates forecasts, chairman Jerome Powell will have his usual post-meeting press conference on Wednesday.
The chief financial economist at Jefferies, Aneta Markowska, also aired his opinion on the expected report:
“I think it will be another benign print. I’m pretty neutral on this report. It feels like that risks are symmetrically skewed toward the high side. I think if you get a higher print, I think the [stock] sell-off is disproportionately stronger.”
He also referred to the Fed chairman’s statement on core goods slowing down. At the same time, Jefferies economists are looking forward to the content of the November inflation report.