NEW YORK, Feb 13 (Reuters) – U.S. consumer prices increased less than expected in January, data showed, keeping the Federal Reserve on track to cut interest rates this year.
The Consumer Price Index rose 0.2% last month after an unrevised 0.3% gain in December. It rose 2.4% on a yearly basis, less than the estimate of a 2.5% increase, according to economists polled by Reuters.
The report was slightly delayed by last week’s three-day shutdown of the federal government.
MARKET REACTION:
STOCKS: U.S. stock futures were flat to slightly lower after the inflation data.
BONDS: U.S. Treasury yields slipped after the inflation report. The yield on benchmark U.S. 10-year notes was last down 2.9 bps at 4.075%
FOREX: The dollar index was flat to slightlyn higher at 96.932.
COMMENTS:
PHIL ORLANDO, CHIEF MARKET STRATEGIST, FEDERATED HERMES, NEW YORK:
“The inflation report is better than expected particularly at the nominal level … This is good news for the Fed and it supports our longer-term thesis that as we get into the leadership transition from Powell to Warsh the Fed will be able to cut interest rates three times over the course of a year or so.”
“On Wednesday, why did the market trade off in the face of strong labor market data? The market perceived that would be detrimental to the Fed trajectory of taking interest rates lower because the labor market in January was much stronger than expected. In the data this morning inflation was better than expected and we think the trajectory continues to work lower. Bonds and stocks had at least knee jerked higher based on the expectation this is good news for the Fed in terms of longer-term justification for bringing interest rates lower.”
BRAD CONGER, CHIEF INVESTMENT OFFICER, HIRTLE, CALLAGHAN & CO, BRYN MAWR, PENNSYLVANIA:
“January’s CPI is a Rorschach test for investors, with wide dispersion across various items. For us, divergence is good news. No uniform trend means the economy is pricing shortage and abundance case by case. That is not an inflationary world, and AI is a deflationary impulse in the long term. We are overweight duration in fixed income and overweight interest rate sensitive names such as homebuilders and real estate.”
BRENT SCHUTTE, CHIEF INVESTMENT OFFICER, NORTHWESTERN MUTUAL WEALTH MANAGEMENT, MILWAUKEE:
“It probably doesn’t change the story too much for the Federal Reserve.
“We’re kind of in a holding pattern. Everybody’s waiting to see what the labor market actually looks like. We did have a stronger than expected jobs report, but the underlying details, at least on non-farm payrolls, were a bit weak. It was concentrated again in healthcare and social assistance, which is non-cyclical.”
“On the inflation side, it looked like core CPI was coming down. This core CPI number upends a decent streak of lower numbers. But we’re kind of still stuck here. It’s a little bit more of a wait-and-see. And I’m sure there’s going to be more volatility based upon that AI trade today.”
“I don’t think the (stock index) futures have moved much. I don’t think the expectations for Fed rate cuts have moved at all.”
JOSH JAMNER, SENIOR INVESTMENT STRATEGY ANALYST, CLEARBRIDGE INVESTMENTS, NEW YORK: (via email)
“A tame January inflation reading lifted risk assets this morning, however price pressures percolating beneath the surface should temper the optimism around a third rate cut this year that is now priced at coin-flip odds in Fed funds futures markets (2.5 total 2026 cuts). Continued shelter disinflation helped keep the headline and core CPI measures in check last month, however ‘supecore’ CPI – core services ex-shelter – accelerated by 0.6% in January, the highest reading in a year. This underlying inflationary impulse is viewed as a read on demand-driven inflation as opposed to tariffs which impact the supply-side. A pickup in demand-drive inflation would be a fly in the ointment that should give pause to some FOMC members when considering additional rate cuts later this year. Given the Fed’s dual mandate of price stability and maximum employment, we believe inflationary concerns could play a larger role than previously expected in determining the path of monetary policy this year.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:
“The bottom line is, this is a good number. It suggests that we’re still away from the Fed target of 2%, but inflation is not accelerating and perhaps maybe we’re beginning to see some daylight in terms of the tariff inflationary aspect of it. It’s still evident, but it’s moderating.”
“I’m expecting (a rate cut) sometime in June, but a lot depends on the labor market. But if the inflation number continues the way it is going, in the right direction, then I think as soon as the new Chairman of the Federal Reserve takes over, we can expect a rate cut.”
LINDSAY ROSNER, HEAD OF MULTI SECTOR FIXED INCOME INVESTING, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK: (via email)”Trust the Groundhog. The Fed’s path to ‘normalization’ cuts appears clearer now with fears of a strong January print behind us with CPI coming in cold! How short or long that path is however will depend on whether employment continues to show signs of improvement, given the FOMC’s sensitivity to labor market weakness. We continue to expect two cuts this year, with the next move coming in June.”
MICHAEL METCALFE, HEAD OF MACRO STRATEGY, STATE STREET MARKETS, LONDON:
“The important takeaway for both rate markets and equities is that the trend in disinflation continues. It kind of reinforces the idea that we are past peak inflation concerns. This is painting a picture of a continued improving inflation outlook, which will allow for rates to fall later in the year.”
(Compiled by the Global Finance & Markets Breaking News)
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