When the U.S. consumer price index (CPI) increase rate in January exceeded market expectations, the New York stock market fell all at once. The Dow Jones Industrial Average fell more than 500 points amid concerns that the U.S. Federal Reserve’s interest rate cut could be delayed.
On the 13th (local time), the U.S. Department of Labor announced that the CPI increase rate in January rose 3.1% compared to the previous year and 0.3% compared to the previous month. This figure exceeded both market expectations of 2.9% and 0.2%. Core CPI, which excludes highly volatile food and energy prices, jumped 3.9% in January compared to the previous year and 0.4% compared to the previous month. This also exceeded market expectations (3.7%, 0.3%). The core CPI increase rate of 0.4% compared to the previous month is the highest in 8 months.
The CPI increase rate in January was largely due to the rise in housing costs, which accounts for one-third of the weight. It showed a continuous upward trend, rising 0.6% in one month and 6% in one year. Food prices also rose 0.4% compared to the previous month, and it was analyzed that housing costs and food prices were driving up U.S. inflation.
The Federal Reserve sees the core of inflation as the service sector, not housing costs or food, and focuses on the personal consumption expenditures (PCE) price index, which has a smaller portion of housing costs. However, even if this CPI reflects the increase in housing costs and food, there are concerns that it will take into account the overall increase rate trend. This is because it is data that allows the Federal Reserve to delay the interest rate cut.
Accordingly, on this day, the Dow Jones Industrial Average recorded 38,272.75, down 1.35% from the previous trading day. The Standard & Poor’s (S&P) 500 index, a large-cap benchmark, fell 1.37% to 4953.17, falling below the 5,000 mark. The Nasdaq index, which focuses on technology stocks, closed at 15,655.60, down 1.8%. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), called the ‘Wall Street Fear Index’, jumped 13.93%.
Previously, Federal Reserve Chairman Jerome Powell had emphasized the timing of the cut, saying, “We can only cut interest rates if we have confidence that prices are falling sustainably to 2%,” and “We need more good (inflation) data.” This means that if the U.S. economy continues to be strong and inflation does not decline steadily enough to satisfy the Federal Reserve, the timing of the cut may be pushed back.
According to the Chicago Mercantile Exchange’s FedWatch, policy rate futures investors are weighing the possibility of an interest rate cut in May. Immediately after the CPI announcement this morning, the possibility of a May cut was lowered from 60% the previous day to 40%, and then again raised to 70%. Given that this hot inflation report was largely due to housing costs rather than the service sector that the Fed is concerned about, it is believed that weight was placed on the possibility of a cut in May.
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.