Tuesday's disappointing inflation report has more investors betting on a “no-landing” scenario in which economic growth continues at current levels, although inflation remains high, Reuters said.
Nearly one in five fund managers surveyed by Bank of America predicted a “no-run” scenario as the most likely outcome for next year, and concerns about such a scenario have sent U.S. markets into a frenzy. This is further exacerbated by the weak outlook for inflation. Tuesday, according to to Reuters. Tuesday's Consumer Price Index (CPI) report showed inflation slowed to 3.1% year-on-year in January from a year earlier, from 3.4% the previous month, and above expectations of 2.9%. (Related article: American companies are starting to shy away from wake business amid growing backlash)
The poor report may have dashed investors' hopes that the federal funds rate would be cut in the next few Federal Open Market Committee meetings, with a cut in March and a cut in May. The probability of being divided into According to Reuters, this is likely to happen sometime in June. Investor futures are now betting on a 0.92% decline in the federal funds rate in 2024, rather than the 1.5% expected a month ago as most likely.
Revised data on the national fiscal situation shows some tightening after macro-adjustment, but it is still much more relaxed than the historical average. This contribution is notable in that his five components, traditionally the largest contributors, are significantly outweighed by others. factor: pic.twitter.com/4gyN9SvSkh
— Dr. EJ Antoni (@RealEJAntoni) February 14, 2024
In an effort to slow the economy and curtail ultra-high inflation due to tight credit conditions, the federal funds rate currently ranges from 5.25% to 5.50%, the highest rate in 23 years. Inflation peaked at 9.1% in June 2022 and has not fallen below 3.0% year-on-year since then.
The Dow Jones Industrial Average fell more than 500 points (1.35%) following the CPI announcement, marking its worst trading day since March 2023. By the end of the day, the Nasdaq was down 1.80% and the S&P was down 1.37%.
Economic growth in recent quarters continues to be above trend, increasing by 3.3% in the fourth quarter of 2023 and 4.9% in the third quarter of 2023, indicating that the economy remains overheating and fueling inflation. One sign is that the Fed is discouraging interest rate cuts.
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