Two fresh inflation readings for the month of January showed prices increased more than Wall Street had expected but economists found positive news for markets and the Federal Reserve within the details.
When evaluating categories from both the Consumer Price Index (CPI) and Producer Price Index (PPI) that feed into the Fed’s preferred inflation gauge, the Personal Consumptions Expenditures (PCE) index, economists argue price increases likely decreased in the month of January.
Inflation Insights president Omair Sharif told Yahoo Finance that Thursday morning’s PPI release brought some “good news” for the Fed’s fight against inflation after CPI data shook up markets on Wednesday. Sharif estimates that “core” PCE, which excludes the volatile categories of food and energy, will likely show prices increased 2.6% in January, down from the 2.8% seen in December.
“We’re just, you know, continuing to kind of creep our way towards the Fed’s 2% target,” Sharif said.
Following the PPI release, the 10-year Treasury yield slid nearly 10 basis points, eliminating its move higher from the day prior that had weighed on stocks in Wednesday’s trading session. All three major indexes were higher as yields moved lower, with the Nasdaq Composite (^IXIC) adding more than 1%.
The odds the Federal Reserve holds interest rates steady through the end of its July meeting decreased following the release. Investors now place a 50% chance the Fed doesn’t cut interest rates at its July meeting, down from a 58% chance seen the day prior, per the CME FedWatch Tool.