Fresh chicken breasts are displayed for sale in the meat section of a Sprouts Farmers Market grocery store on February 23, 2024 in Redondo Beach, California.
Patrick T. Fallon AFP | Getty Images
Inflation rose again in February, keeping the Fed from lowering interest rates until at least the summer.
The U.S. Department of Labor’s Bureau of Labor Statistics reported on Tuesday that the consumer price index, a broad measure of the cost of goods and services, rose 0.4% this month and was up 3.2% from a year earlier. The monthly gain was in line with expectations, but the annual rate was slightly higher than the Dow Jones consensus forecast of 3.1%.
Excluding volatile food and energy prices, core CPI rose 0.4% from the previous quarter and 3.8% from the same period last year. Both beat forecasts by a tenth of a percentage point.
Although 12-month inflation growth has moved away from the mid-2022 inflation peak, it remains well above the Fed’s 2% target as the Fed holds its two-day policy meeting in a week .
A 2.3% rise in energy costs pushed up the overall inflation figure. Food costs were unchanged from the month, while housing costs rose another 0.4%.
The U.S. Bureau of Labor Statistics reports that increases in energy and housing accounted for more than 60 percent of the total increase. Gasoline rose 3.8% for the month, while owner-equivalent rents, a hypothetical measure of property rented out by owners, rose 0.4%. Airline fares increased by 3.6%, and used car fares increased by 0.5%.
The overall CPI annual increase was 0.1 percentage points higher than in January, and core CPI fell by one-tenth of a percentage point.
After the news came out, the market initially reacted little, with futures linked to major stock indexes and Treasury yields rising slightly.
Although 12-month inflation growth has moved away from the mid-2022 inflation peak, it remains well above the Fed’s 2% target as the Fed holds its two-day policy meeting in a week .
Fed officials have suggested in recent weeks that they may cut interest rates at some point this year and expressed caution about easing too soon in the fight against high prices. Chairman Jerome Powell expressed these concerns in testimony before Congress last week, but he also mentioned that the Fed may not be far away from starting to ease monetary policy.
For financial markets, the shift in the Fed’s stance from an apparent policy shift at the end of 2023 means a repricing of the pace of rate cuts. Since the beginning of this year, futures traders expect that interest rates will begin to be cut in March this year. There will be a total of six to seven interest rate cuts this year, but they have postponed the first interest rate cut to June. Assuming that the interest rate cut is a quarter of a percentage point, then the next There will be three more interest rate cuts.
A booming economy helps the Fed focus on incoming data and keeps policymakers from rushing to cut interest rates. According to GDPNow tracking data from the Federal Reserve Bank of Atlanta, gross domestic product will grow at an annualized rate of 2.5% in 2023 and is expected to grow at an annualized rate of 2.5% in the first quarter of 2024.
A key factor in this growth is consumer resilience boosted by a strong labor market. The economy added another 275,000 nonfarm jobs in February, but the increase was heavily skewed toward part-time work, and the unemployment rate rose to 3.9%.
That strength could be a double-edged sword: While economic growth buys the Fed policy time amid steep interest rate hikes, it also raises concerns that inflation could be more persistent than expected.
Housing costs are of particular concern.
Housing, which accounts for about one-third of the CPI’s weight, has slowed slowly, at least according to the Bureau of Labor Statistics’ measure. Fed officials expect rental prices to fall this year, and measures other than owner-equivalent rent, a hypothetical measure of what landlords earn in the rental market, also suggest easing price pressures.
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