Feburary's CPI report will provide some clues to the Fed's interest rate strategy for the first half of 2023. Here are the key considerations.
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Federal Open Market Committee meeting in Washington, DC, US, on Wednesday, Feb. 1, 2023. TPhotographer: Al Drago/BloombergThe markets and the Fed were previously not aligned on coming rate increases. Over the past week, the markets have shifted to the Fed’s view, expecting another hike in March and likely May as well. This may be in part due to January’s
, but it could also reflect certain fears around January Consumer Price Index data. There’s a chance that it may not be quite as rosy as some hope.On Valentines Day, February 14 at 8.30am ET we’ll see the CPI report for the month of January 2023.To be clear, recent inflation data has been generally good. Inflation has trended lower. That’s been due to easing energy and food costs, and the prices for used cars and various goods have actually fallen in absolute terms in recent months.
The Fed has started to acknowledge these encouraging trends too. However, concerns remain, specifically as shelter costs which carry a large weight in the CPI series continue to rise steeply. There’s good reason to think that might change, but we haven’t seen it in CPI data yet. Also, the Fed worries about wage growth continuing to push services costs higher, and the recent strong jobs report won’t have comforted the Fed on that score.
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