Investors are closely monitoring the release of the U.S. Consumer Price Index (CPI) data for February, due to be published by the Bureau of Labor Statistics (BLS) on Tuesday, March 14 at 12:30 GMT. The inflation data will have major implications for the Federal Reserve’s (Fed) upcoming March 22 policy meeting, as the central bank is tightening monetary policy at the fastest rate in decades in an effort to quell inflation.
Economists are expecting the CPI to show that consumer prices cooled slightly last month, with headline inflation forecast to rise 6.0% over the prior year, a slowdown from January’s 6.4% annual gain.[0] On a monthly basis, the CPI is expected to rise 0.4%, while the Core CPI, which excludes volatile food and energy costs, is also forecast at 0.4%.[1]
In an attempt to control inflation, the Federal Reserve has increased its benchmark interest rate target from 4.5% – 4.75% over the past year, for a total of 4.5%. Last summer, consumer prices reached a 40-year peak of 9.1%, the highest rate seen in decades.[2]
Jerome Powell, Chair of the Federal Reserve, declared last week that a further rise in rates may be necessary if evidence of continued economic growth is observed in the following weeks, yet no decision has been made regarding the upcoming March meeting.
Markets are now pricing in a 52.4% chance of a 25-bp hike at the Fed meeting next week, and 47.6% probability of no hike at all, according to the CME FedWatch Tool.[3] Only a week prior, the markets had calculated a 69.8% probability of a 50-basis point increase.[4]
The Federal Reserve Bank of New York’s Center for Microeconomic Data recently released the February 2023 Survey of Consumer Expectations, which showed that inflation expectations decreased sharply at the short-term horizon, remained unchanged at the medium-term horizon, and slightly increased at the long-term horizon.[5]
U.S. stock futures gained ground on Tuesday ahead of the inflation data and ructions in the banking sector.[6] Asia-Pacific markets also ended the trading session in the red.[7]
0. “February inflation report likely to show consumer prices remain elevated” Yahoo Finance, 14 Mar. 2023, https://finance.yahoo.com/news/february-inflation-report-likely-show-060049349.html
1. “The February CPI Report May Deliver A Huge Surprise To The Market” Seeking Alpha, 12 Mar. 2023, https://seekingalpha.com/article/4586774-february-cpi-surprise-market
2. “Inflation data arrives at critical moment for Fed after bank failures, jobs data” Yahoo News, 13 Mar. 2023, https://news.yahoo.com/inflation-data-arrives-at-critical-moment-for-fed-after-bank-failures-jobs-data-192322720.html
3. “Top 5 things to watch in markets in the week ahead By Investing.com” Investing.com, 12 Mar. 2023, https://www.investing.com/news/economy/top-5-things-to-watch-in-markets-in-the-week-ahead-3028260
4. “CPI watch: All eyes on inflation data for clues on Fed rate hike path” msnNOW, 14 Mar. 2023, https://www.msn.com/en-us/money/markets/cpi-watch-all-eyes-on-inflation-data-for-clues-on-fed-rate-hike-path/ar-AA18BliA
5. “Short-Term Inflation Expectations Decline Sharply; Labor Market Expectations Improve” Forex Factory, 13 Mar. 2023, https://www.forexfactory.com/news/1210340-short-term-inflation-expectations-decline-sharply-labor-market-expectations
6. “U.S. stock futures rise as traders eye inflation data and bank situation” MarketWatch, 14 Mar. 2023, https://www.marketwatch.com/story/u-s-stock-futures-rise-as-traders-eye-inflation-data-and-bank-situation-92f91444
7. “Stock Market News Today: U.S. Futures Trade Higher Ahead of CPI Data” TipRanks, 14 Mar. 2023, https://www.tipranks.com/news/stock-market-news-today-u-s-futures-trade-higher-ahead-of-cpi-data