ZINGER KEY POINTS
- February’s CPI surpasses expectations, casting doubt on imminent Fed rate cuts, causing traders to revise upcoming rate adjustments.
- Annual inflation climbs to 3.2% in February 2024, above the expected 3.1%. Core inflation eases to 3.8%, but tops the predicted 3.7%.
The U.S. consumer price index exceeded expectations in February, mirroring the robust performance seen in January and casting doubt on the imminent commencement of interest rate cuts by the Federal Reserve.
In February 2024, the inflation rate climbed to 3.2% compared to the previous year, as disclosed by the Bureau of Labor Statistics on Tuesday.
Here are the key highlights from February’s inflation report:
- The year-over-year change in the headline CPI index rose to 3.2% in February, surpassing both the previous and expected rate of 3.1%.
- The headline CPI saw a monthly increase of 0.4%, up from the previous 0.3% and matching the expected 0.4% rise.
- The core CPI, excluding energy and food items, eased from 3.9% in January 2024 to 3.8% in February 2024, slightly higher than the anticipated decline to 3.7%.
- On a monthly basis, the core CPI increased by 0.4%, in line with January’s figure and exceeding the predicted 0.3% rise.
Market Implications And Reactions:
Market expectations for a Fed rate cut by June waned as traders adjusted their predictions in response to the higher-than-expected inflation report. Implied probabilities of an interest rate cut by June declined to 67%, down from 70% prior to the release.
The Federal Reserve is set to convene its two-day Federal Open Market Committee (FOMC) meeting a week from now. Although no adjustments to interest rates are expected, investors will carefully analyze the revised economic forecasts provided by the Fed.
In December 2023, policymakers projected inflation to average 2.4% in 2023, 2.1% in 2025 and reach the 2% target by 2026. Based on these projections, the Fed hinted at the possibility of three rate cuts in 2024, four in 2025 and an additional two cuts in 2026, with fed fund rates potentially reaching 2.9%.
Yet with the latest inflation reports surpassing expectations, there is now a risk of revising these interest rate projections upward.
Following the release of the inflation report, the Dollar Index (DXY), tracked by the Invesco DB USD Index Bullish Fund ETF slightly surged.
Treasury yields remained broadly unchanged, with the two-year yield, sensitive to interest rate changes, trading at 4.55%.
Futures on major U.S. averages traded higher during Tuesday’s premarket session, with S&P 500 contracts up by 0.4% as of 8:35 a.m. in New York.
—
Originally Posted Inflation Rises More Than Expected To 3.2% In February, Rebuffs Expectations Of June Fed Rate Cut
Disclosure: Benzinga
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Benzinga and is being posted with its permission. The views expressed in this material are solely those of the author and/or Benzinga and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: ETFs
Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
