Economy Shows Resilience as CPI and Retail Sales Rise, Fed Prepares for Rate Hikes
Economists are expecting the overall consumer price index (CPI) to rise 0.5% in January, following December's upwardly revised 0.1% gain, and the annual rate to slip to 6.2% from 6.5%. Core CPI, which excludes the volatile costs of food and energy, is seen rising 0.3%. This would reduce the core CPI inflation rate to 5.5%.
The 10-year Treasury yield rose 5 basis points to 3.81%, a 2023 high, while the five-year Treasury note's yield rose as much as 12 basis points to 4.03%. The two-year note, more sensitive than longer maturities to Federal Reserve policy changes, climbed as much as 12 basis points to nearly 4.64%, the highest since November and within 20 basis points of last year’s multiyear high.
January retail sales as reported by the Commerce Department saw an increase of 3%, much higher than the predicted 1.7% rise which followed December's 1.1% decline. This stronger-than-expected retail sales data demonstrate the resilience of the economy and suggest that consumer spending has remained strong, which in turn could increase pressure on the Federal Reserve to stick with its rate hikes.
Since March 2022, the Federal Reserve has increased its policy rate 8 times, with the most recent hike being to a range of 4.5%-4.75% on February 1st, after initially dropping the lower bound to 0% during the start of the pandemic. The median forecast by Fed officials was for the policy rate to end the year at about 5.1%, although the latest report gives more ammunition to the theory that the Fed's campaign will drag the economy into a recession this year.
Oil prices continued to plummet as the U.S. dollar strengthened and an increase in U.S. stockpiles was estimated. On Wednesday morning, West Texas Intermediate (WTI) crude futures, the U.S. benchmark, dropped 1% to trade around $78.
At 11:03 Eastern Time (16:03 Greenwich Mean Time), the Dow Jones Industrial Average had decreased by 158 points, equaling a 0.5% decline. Simultaneously, the S&P 500 dropped 0.5% and the NASDAQ Composite declined
At the Economic Club of Washington, D.C., Jerome H. Powell, the Federal Reserve Chair, addressed the audience last week and warned them that the journey to reduce inflation is likely to be “not going to be smooth.“.
0. “Consumer prices rose 6.4% in January” Fox Business, 14 Feb. 2023, https://www.foxbusiness.com/economy/will-cpi-reinforce-powells-disinflation-view
1. “Traders Capitulate, Abandoning Fed Rate Cut Bets After CPI Spike” Yahoo News, 14 Feb. 2023, https://news.yahoo.com/traders-capitulate-abandoning-fed-rate-213611625.html
2. “Fade The CPI; Here's What Matters To The Fed, S&P 500” Investor's Business Daily, 13 Feb. 2023, https://www.investors.com/news/economy/fade-the-cpi-inflation-report-what-matters-to-the-fed-sp-500
3. “Nasdaq, S&P, Dow mixed as January retail sales jump by the most in almost two years” Seeking Alpha, 15 Feb. 2023, https://seekingalpha.com/news/3936430-nasdaq-sp500-dow-jones-stock-market-retail-sales-data-earnings
4. “CPI: Prices rise 6.4 percent in January, seventh month of easing inflation” The Washington Post, 14 Feb. 2023, https://www.washingtonpost.com/business/2023/02/14/inflation-easing-cpi-january/
5. “Stock market news today: Stocks rise after strong retail sales data” Yahoo News, 15 Feb. 2023, https://news.yahoo.com/stock-market-news-today-february-15-2023-130622082.html
6. “U.S. stocks are falling after retail sales fuel rate fears By Investing.com” Investing.com, 15 Feb. 2023, https://www.investing.com/news/stock-market-news/us-stocks-are-falling-after-retail-sales-fuel-rate-fears-3004284
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