11 January 2024
If you are covering the latest US inflation data, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“US inflation came in slightly higher than expected, underscoring the fact that the job is not yet done for the Federal Reserve and that previously dovish language may have been premature. While inflation was always expected to tick up and bounce around at this level for a period, this data print will be a warning to financial markets that have been punchy in the scale of rate cuts expected this year. Three rate cuts signalled by the Fed is looking increasingly more likely.
“In particular housing appears to have been a large contributor to this print and suggests the rise is not just the impact of base effects. This is partly driven by a lack of housing supply driving up prices and rents, with most US homeowners in reality having seen little change to housing costs which are typically on long term fixed rate mortgages.
“While you cannot read too much into a data point in isolation, the possibility of rate cuts in the first half of the year is looking increasingly stretched. The US economy continues to prove resilient and while the Fed won’t want to act too late on rate cuts given the lag effect, they will also be worried about causing a fresh bout of inflation given the US consumer and corporate America is holding up well.
“It is not going to be easy to get back to the magic 2% inflation target and thus market volatility is likely to remain elevated for the time being. Compared to December, this month has seen a lacklustre start from stock markets and uncertainty is only going to fuel that. Until rate cuts come further into view markets will remain choppy.”
