Core CPI reports sink Wall Street and investors’ market uncertainty rises this Thursday.
Investors were hoping that this would paint a positive and better picture of the inflation landslide in the U.S. Markers had such high hopes in terms of inflation and the Federal Reserve interest rate hikes.
Unfortunately, Wall Street has been left uncertain after the release of the U.S. core inflation for December. Unlike market expectations, the U.S. consumer inflation report for December caused uncertainty on Wall Street. Headline U.S. inflation increased to 3.4% annually, up from 3.1% in November, exceeding the expected 3.2%. On the one hand, the reports show that price pressures continued to decelerate in the final weeks of 2023. That’s largely due to lower prices for core goods, like energy and fuel, as well as cheaper prices in other categories, such as used vehicles. On the other hand, these decreases came in sharp contrast to market expectations, which had caused mixed feelings among investors. As the core inflation data has proven, “core” inflation, excluding volatile items like food and energy, decreased to 3.9%, down from 4.0% in the previous month but still above the expected 3.8%.
Still, in terms of higher interest rates and monetary policy, the decreasing core prices suggest that the Federal Reserve may still cut interest rates this year.
Cleveland Fed President Loretta Mester said on Thursday. He also shared his thoughts today in an interview with Bloomberg TV. Mester said I think March is probably too early in my estimation for a rate decline because I think we need to see some more evidence. His comments suggest that the U.S. Fed official has committed to their target inflation rate. Yet they are being cautious, especially when the year is still just starting and there is little evidence to count on. Mester added. “I think the December CPI report just shows there is more work to do, and that work is going to take restrictive monetary policy.”
Market analysts currently project a 95.3% chance that the Federal Reserve will maintain the 5.25%–5.50% federal funds rate target range at its meeting on January 30-31. According to the CME’s FedWatch Tool, traders have boosted their bets that the Fed will make its first cut at its meeting on March 19–20. The chance of a 25 bps decrease is at 66.3%, up from 43.2% a month ago.
Moving to individual stock news, Citigroup (C) stock fell 2.5% as the bank warned of $880 million in currency conversion losses from Argentina and $780 million from restructuring in the fourth quarter.
KB Home (KBH) stock dropped 2.5% after disappointing fourth-quarter results, with a 4.5% decline in average selling prices for its properties.
Alphabet (GOOGL) stock initially rose 1.8% on reports of Google cutting hundreds of employees to reduce costs and focus on artificial intelligence, but it later traded 0.8% lower.
Meanwhile, in Wall Street, as of 12:51:26 a.m. ET, all Wall Street main indexes record an average of 0.45% decline. The S&P 500 benchmark was down by 0.52%, the Nasdaq composite fell by 0.58%, and the Dow futures fell by 0.4%.