The Consumer Price Index (CPI) for January rose more than expected, with a 0.5% increase. This was due to a rise in food and energy prices, which is to be expected during winter. However, on a year-over-year basis, the CPI was running somewhat hotter than hoped, coming in at a 6.4% pace in January versus 6.5% in December and against predictions for 6.2%. The core CPI – which strips out food and energy costs – rose 0.4% in January, also in line with expectations and flat from December’s pace.
The market reacted swiftly to the news that the year-over-year core CPI in January was faster than forecast at 5.6% versus 5.5% expected. This was down from 5.7% a month earlier. Immediately following the news, the price of bitcoin (BTC) fell about $100, trading at $21,770 at press time. Stock index futures also dipped a bit, with the Nasdaq 100 lower by 0.25%.
Many traders are closely watching the pace of inflation, which remains elevated, but has been slowing for several months. Some believe that the Federal Reserve will hike interest rates four times this year in order to combat rising prices. However, others are concerned that the Fed could overreact and cause a recession.
The Federal Reserve’s plans to continue its rate hike cycle may be in jeopardy this morning as a new report suggests more work needs to be done. Markets are still expecting the central bank to hike its benchmark Fed Funds rate another 25 basis points at each of its next two meetings, but there is growing uncertainty about the Fed’s plans.
The Federal Reserve’s next move is still up in the air, according to this morning’s report. A continued slowdown could give the Fed the space to pause its rate hike cycle, but more work needs to be done. Markets continue to expect the central bank to hike its benchmark Fed Funds rate another 25 basis points at each of its next two meetings, but there’s no telling what will happen after that.