Select Page

Headline, all-items Consumer Price Index (CPI) inflation fell again in January, but not by as much as economists had projected before this morning’s report from the Bureau of Labor Statistics. In January prices rose at 3.1% year-over-year. That’s a slower increase than the 3.4% annual rate notched in December.

But economist had projected that inflation would dip to a 2.9% annual rate. And stocks dropped on the disappointment.

The core index, which excludes more volatile food and energy prices, rose at a 3.9% annual rate in January. That was the same rate of increase as in December.

The Standard & Poor’s 500 fell 1.37% on the day, and the NASDAQ Composite fell 1.8%. The Dow Jones Industrial Average closed down 1.35%.

The yield on the 10-year Treasury rose 14 basis points to 4.32% as bond prices fell.

The inflation news also shifted investor expectations for when the Federal Reserve will begin to cut rates. According to the CME FedWatch Tool, which calculates the odds of a Fed move from prices in the Fed Funds Futures market, the odds of an interest rate cut at the March 20 Fed meeting are down to just 8.5%. The odds of a March 20 cut were 16.0% yesterday, February 12. The 91.5% odds for no cut at the meeting are up fom just 19% on January 12.

The odds that the Fed will hold rates steady at its May 1 meeting rose also to 66.1% toes from 39.3% yesterday and 0% on January 12.

The market is starting to think June.