Egg cartons are on display at grocery stores on February 10, 2025, with warnings that restrictions will be placed on purchases as they continue to affect the egg industry with avian flu.
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January’s Consumer Price Index Report could be a familiar story. There are concerns about another month, another expected mistake related to the Federal Reserve goals, what will happen from here.
So instead of looking for hope from headline measurements that aren’t expected to change much from December, the market could raise hopes that the Fed could eventually start a rate cut again. Let’s look into.
“Inflation is stuck beyond targets, risk is skewed upside down, activity is strong, and the labour market appears to be stable, centered around full employment.” “CPI forecasts for January If it’s correct, it’s even stronger if the Fed stays on hold.”
Bank of America is one of Wall Street’s most pessimistic voices in terms of expecting more supplies.
In fact, bank economists believe that as inflation increases, the Fed will continue to be held up for the rest of the year and beyond. According to data from the CME Group, traders believe the Fed will approve a quarter-point reduction in July and will then continue.
Even more quickly, Bank of America’s forecast is roughly the same mesh as Dow Jones’ outlook for January CPI. This is an increase of 0.3% per month across all item indexes, with an inflation rate of 2.9% over the 12 months, the latter being the same as in December. Excluding food and energy, the core readings for each are projected to be 0.3% and 3.1%. This is a small mark from the December 3.2% reading.
According to Goldman Sachs, from a detailed perspective, the increase could be caused by rising car prices and car insurance, as well as rising car insurance. The company expects only moderate downward pressure from airfares, and importantly, it constitutes about a third of CPI weighting and has inflation retention exceeded the Fed’s 2% target. This is the rent-related category that is the main cause.
From here things get more complicated.
Optimistic despite tariff concerns
While economists expect a significant portion of the divergence from several key categories, President Donald Trump’s tariffs could serve as an inflation counterweight.
“We will see further developments in the pipeline from rebalancing in the automobile, home rental and labor markets in the future, offsetting from escalation of tariff policy,” Goldman Economist said in a memo.
However, there have been some good news recently. While a University of Michigan consumer survey showed a surprising conflict with inflation expectations, other measures show that the outlook is indeed softening.
A January National Independent Business Survey showed that only 18% of SME gauges reported inflation was the biggest problem. This is the lowest level since November 2021. CEOs and other top executives expect to run CPIs at a rate of 3.2% over the next 12 months. This is well above the 2% standard, but has fallen sharply from 3.8% in the fourth quarter.
Among the conflicting information, the Fed is expected to remain in place.
Federal Reserve Chairman Jerome Powell said on Tuesday that the central bank will not hurry to cut interest rates, but Cleveland Industry President Beth Hammack is continuing inflation that could be exacerbated by tariffs as a reason to stay. pointed out.
“Money policy needs to be positive in nature, but forecasting is not a substitute for recognition, or perhaps it’s placed on Jerry Maguire,” Hammack said.
