February CPI Inflation Moderates, Market Odds of Fed Rate Hike Increase

Inflation moderated in February as the U.S. Consumer Price Index (CPI) rose 6.0% year-over-year, down from 6.4% in January.[0] The 0.4% monthly increase in CPI was in line with expectations, while the 0.5% increase in the core CPI was hotter than expected.[1] The core inflation rate is now up 5.5% year-over-year, a 40-year high.[2] The index for shelter is the biggest contributor to the monthly all items increase, accounting for over 70 percent of the increase, with the indexes for food, recreation, and household furnishings and operations also contributing.[3] Ahead of the February CPI report’s release, markets had priced in about 64% odds of a quarter-point rate hike at next week’s Fed meeting.[4] The likelihood of an interest rate hike increased to 88% after the release of the CPI inflation data, leaving only a 12% chance of no hike.[4] The report has implications for the Federal Reserve, as it copes with the double whammy of stubbornly high inflation and instability in the banking sector.[5] Different banks have different expectations of what the Fed will do, with Goldman Sachs predicting that the Fed won’t raise rates, while Bank of America, EY, and Oxford Economics are reportedly expecting the central bank to raise interest rates by 0.25 percent.[6] It’s still unclear how Fed officials will react to the banking sector’s struggles, but officials will be forced to respond to the turmoil at the conclusion of the central bank’s next policy meeting, on March 22.[7]

0. “Inflation fell for the eighth straight month in February” The Mercury News, 14 Mar. 2023, https://www.mercurynews.com/2023/03/14/inflation-fell-for-the-eighth-straight-month-in-february/

1. “US CPI rose 6.0% in February, per the Bureau of Labor Statistics” Business Insider, 14 Mar. 2023, https://www.businessinsider.com/inflation-price-growth-us-cpi-february-2023-3

2. “Inflation rose 6% in February as Fed mulls more rate hikes amid bank chaos” New York Post , 14 Mar. 2023, https://nypost.com/2023/03/14/inflation-rose-6-in-february-as-fed-mulls-more-rate-hikes

3. “Breaking News: Headline US Inflation Drops to 6%, US Dollar Undecided” DailyFX, 14 Mar. 2023, https://www.dailyfx.com/news/breaking-news-headline-us-inflation-drops-to-6-us-dollar-undecided-20230314.html

4. “CPI Inflation Rate Still Pretty Hot, But Fed May Pause” Investor’s Business Daily, 14 Mar. 2023, https://www.investors.com/news/economy/cpi-inflation-rate-still-pretty-hot-but-fed-may-pause-sp-500-futures-rise/

5. “Inflation rose 0.4% in February as prices remain stubbornly high” Fox Business, 14 Mar. 2023, https://www.foxbusiness.com/economy/inflation-rose-february-prices-remain-stubbornly-high

6. “What Inflation Data Means for the Economy After SBV Collapse” Newsweek, 14 Mar. 2023, https://www.newsweek.com/inflation-sbv-data-economy-collapse-finance-1787619

7. “Inflation Fell To 6% In February—But Some Experts Fear Banking Crisis Could Make Prices Worse” Forbes, 14 Mar. 2023, https://www.forbes.com/sites/jonathanponciano/2023/03/14/inflation-fell-to-6-in-february-but-some-experts-fear-banking-crisis-could-make-prices-worse