My daughter’s wedding is in 58 days, and the topic at my house right now is wedding flowers. My wife planned on making the bouquets for the bride and eight bridesmaids. She bought flowers so she could start practicing and build her confidence, and at first, the bouquets looked amazing. Confidence would also be the word I would use to describe investors’ reaction to this week’s inflation reports. I hope things turn out better for the market than the bouquets.
Investors feel more confident that the Federal Reserve will continue to cut interest rates this year after this week’s inflation reports showed slower-than-expected inflation last month. The Bureau of Labor Statistics report showed the core Consumer Price Index (CPI) rose 0.2% last month after increasing 0.3% for four consecutive months. The headline rose 2.9% in December, up from 2.7% in November but in line with most economist forecasts.
However, core consumer prices, which don’t include food and energy, rose 0.2% in December from the previous November, less than the 0.3% gain that economists had expected. Cooling price growth could reinforce the case that the Fed will continue rate cuts in 2025.
This is good news for investors who, after seeing strong holiday retail sales and a lowering unemployment rate, worried that the economy was starting to overheat and feared inflation would reignite. The strong data had investors lowering their expectations for more Fed cuts, leading some Bank of America economists to even speculate that the Fed could raise rates at its next meeting.
Inflation isn’t speeding up. The Richmond Federal Reserve President, Thomas Barkin, said on Wednesday that the CPI report for December “continues the story we have been on, which is that inflation is coming down towards (the) target.” This week’s inflation reports supported the idea that the Fed’s next move is to ease rates. The Wall Street Journal wrote that the chances of more than one cut rose to 51% from 35%. This week’s data reinforces the belief that the current Fed rate-cutting cycle isn’t finished quite yet. Traders think the first cut will be in June, with a second cut in December.
My wife’s practice bouquets were heavy on hydrangeas, which quickly wilted. It turns out hydrangeas have to be cut at a sharp angle and dipped in boiling water to preserve their beauty. All that to say, my wife’s attempt at building confidence failed miserably. It sounds like I am buying more flowers than I expect. Hopefully, the inflation confidence will work out a lot better.
In summary,
Have a blessed week!
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