The CPI data is out, and financial traders are paying attention and making their moves, in a mixed reaction. The Consumer Price Index, or CPI, for December 2022 has finally been released to the public, and this inflation data point could have ripple effects for weeks or even months.
That’s because the Federal Reserve, and particularly Chairman Jerome Powell, will undoubtedly use the CPI reading to help gauge whether inflation has come down enough to stop aggressively raising interest rates. Ultimately, Federal Reserve officials want to see annualized inflation reduced down to 2%.
The central bank’s next policy decision is set to be announced on February 1; a high CPI print could lead to a 0.5% interest rate hike, while a low inflation reading might convince the Federal Reserve to raise the federal funds rate by 0.25%. Powell indirectly referred to the CPI when he recently said in a speech, “[R]estoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy.”
As it turns out, the CPI numbers were neither higher nor lower than what economists had anticipated. The CPI increased 6.5% year-over-year in December, versus 7.1% in November, and that’s what economists had predicted. Month-over-month, the CPI declined 0.1%, again matching economists’ estimate. Also in-line with expectations were December’s core CPI, which increased 0.3% month-over-month and 5.7% year-over-year.
Indexes and Stocks Are Mixed after the CPI Report
It’s rare that all of the reported inflation data would be exactly as expected, so it seems that the markets didn’t know how to react this morning. In the premarket hours after the release of the CPI numbers, the S&P 500 (SPX), Dow Jones Industrial Average (DJIA), and Nasdaq 100 (NDX) were all fairly flat, after wobbling between green and red for a while.
Some notable movers included Taiwan Semiconductor (NYSE:TSM), which was up 4% in premarket trading; American Airlines (NASDAQ:AAL), also up 4%; and Disney (NYSE:DIS), up 2%.
Whether these indexes and stocks finish the day up or down remains to be seen. It could be a photo finish as financial traders decide whether an in-line easing of inflation is worth celebrating. The ultimate decider of that, of course, will be Powell and the Federal Reserve when they convene to determine U.S. monetary policy in a few weeks.
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