‘They’re Definitely Still Hiking’: Inflation Cooling May Not Deter Fed

Markets remain indecisive, with wide 2% swings seen in both directions shortly the report’s release

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Blockworks exclusive art by Axel Rangel modified by Blockworks

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The US Consumer Price Index (CPI) met expectations, dipping by 0.1%, reaching 6.5% from December a year earlier. This has been the smallest 12-month increase in index prices since the period ending October 2021.

Since the report’s release, bitcoin’s price dipped by about 0.7%, and the price of ether is roughly flat. Markets remain indecisive, with wide 2% swings seen in both directions over the following 90 minutes.

A drop in gasoline prices was the largest contributor to the core inflation dip, something that Tom Essaye, president of Sevens Report Research, told Blockworks is “a little bit more disappointing than the headline would imply.”

The 6.5% headline is mostly reflective of the 7% inflation that the US experienced in the first few months of 2022. 

“If you strip out gasoline prices, there’s still evidence of firm price pressures,” Essaye said. 

“That said, the number is still moving in the right direction, and investors have latched onto the hope that inflation will fall faster than economic growth will slow,” he added.

The Federal Reserve fund rates currently sit at 4.25%-4.5% and are comparatively low to the year-on-year CPI. Market reaction in recent days implies that it believes that the Fed’s rate hike will be less than previously expected and will cut rates before the end of the year.

Craig Erlam, a market analyst and trader at OANDA, told Blockworks that the latest index data “continues a very positive trend in the data.”

This, “combined with other releases — notably the jobs reports — has investors pricing in only a couple more rate hikes starting with 25 basis points in February,” Erlam said, referring to the next FOMC meeting slated for Jan. 31-Feb. 1. 

Although, Essaye noted, there is little evidence to support such a conclusion, the report is not  “bad enough to dash that hope.”

“There’s nothing in this report that would get the Fed very excited and make them believe that they were more effective than they thought they were, so I expect this will not change anything on the Fed side,” Essaye said.

“It’s still uncertain whether or not they will hike by 25 basis points or 50 basis points,” he added. One thing is for sure, however: “they’re definitely still hiking.”


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