"These Numbers Are Uncomfortable For The Fed": Wall Street Reacts To Today's Red Hot CPI

Ahead of today's shockingly hot CPI report we warned that today's CPI report would be, well, shockingly hot...

... and not just because the trends in most of the components hinted it... not just because this was the Biden admin's farewell report, one in which the previous administration would kitchen sink all the "real" data to make up for years of fabricating numbers, just as Trump correctly responded...

... and certainly not just because of the well-known seasonal bias - which we noted in our preview last night - to make first half inflation numbers in general, and January in particular especially hot, as shown by Jim Reid. As the DB strategist notes, surprises to CPI over the last 25-plus years have been more likely to be biased to the upside in H1 than in H2. January’s release has seen the largest number of beats (50%) and the lowest number of downside misses (15%).

No, all of the above were certainly arguments behind our correct conclusion that today's CPI would come in red hot, but the clearest reason why inflation surprised to the upside is the Fed's now openly political bias, which culminated with a 50bps jumbo rate cut in September only to make the Kamala Harris/Biden campaign easier. We all know what happened next, and in case we don't, here it is again.

And while very few others were accurate in their preview of today's CPI number, all of them had an opinion about it after the fact (of course). So, as we do every month, below please find several excerpts of what Wall Street strategists and analysts think of today's CPI print (and why it is so different from what they thought about it before). .

David Kelly, chief global strategist at JPMorgan Asset Management:

There is nothing in this report that suggests the Fed should lower interest rates.

Steven Ricchiuto, chief economist of Mizuho Securities USA

The rise in consumer prices was broad-based with both goods and services leading the way higher. Headline and core CPI both came in hot confirming that the disinflation the Fed has been counting on has stalled, suggesting the Fed has probably lost its opportunity to cut rates further.

Ryan Sweet, chief US economist at Oxford Economics

We don’t want to chalk all the upside surprise to residual seasonality, but shifting through the details, it seems eerily similar to early 2024 when inflation came in hotter than expected. Keep in mind that the additional tariffs on China along with the slew of tariffs threatened on other countries have yet to make their way into the inflation data.

Seema Shah, chief global strategist at Principal Asset Management

These numbers are uncomfortable for the Fed. Seasonality and one-off factors may have played some role in the upside surprise, but the combination of average earnings growth surprising to the upside last week, the supercore services inflation number moving sharply higher today, and the government’s policy agenda threatening to raise inflation expectations, is almost too convincing to dismiss. If this persists into the next few months, inflation risks may become too heavily weighted to the upside to permit the Fed to cut rates at all this year.

Scott Helfstein, Global X’s head of investment strategy, 

A tough inflation report to get while the White House is looking at further tariffs with consumer inflation expectations jumping higher.

Omair Sharif, founder of Inflation Insights 

The price of used cars spiked due to a large adjustment to the seasonal factor, which leans against a price breakout in this sector.

Ian Lyngen, chief rates strategist at BMO Capital Markets 

This is unhelpful timing right before the 10-year Treasury note auction. The government will be selling $42 billion of those securities today as part of its so-called quarterly refunding. Tomorrow brings a $25 billion 30-year bond sale. The higher yields today just add to the Treasury’s interest costs...for decades to come!

Neil Birrell, CIO at Premier Miton Investors, 

There is not much good news in today’s print as core inflation remains an issue. This print is going to take the wind out of the sails of those looking for interest rate cuts and aligns with a cautious stance from the Fed. The bond market won’t like it, the equity market won’t see much positive and the dollar should strengthen.

Skyler Weinand, CIO at Regan Capital

The Fed is facing extreme uncertainty around the new Trump administration’s policies and how they will affect consumer prices. Tariffs, fiscal deficits and uncertain tax and spending policies in 2025 is creating extreme anxiety for the Federal Reserve, and making it tougher for them to reduce interest rates anytime soon. While President Trump and Treasury Secretary Bessent want 10-year Treasury rates to fall in order to relieve borrower angst, the market is in control of long duration yields.

Gregory Faranello, head of US rates strategy for AmeriVet:

Similar to last year we continue to price the notion of further Fed hikes out. It’s a long year. But inflation expectations have been rising, prices are clearly front and center, and the Fed has made the right decision to take a back seat at the moment.

Richard Flynn, managing director at Charles Schwab UK

I do not expect a change in interest rate policy for at least the first half of 2025 after this print. All else equal, hotter inflation would likely keep the Fed from cutting rates sooner, which would in turn result in a stronger dollar. The dollar’s strength could help offset some of the inflationary pressures in the economy and from tariffs. It also makes US Treasuries attractive to hold, helping to mitigate some of the upward pressure on yields.

Ira Jersey, Bloomberg Intelligence chief rates strategist

Today’s higher-than-expected CPI report solidifies the Fed’s stance that they’ll be on hold. We think the earliest the Fed may move again is June, but a continued string of 0.3% or higher CPI prints makes a longer pause more likely.

Michael Brown, strategist at Pepperstone 

Any rate reductions in the first half of 2025 now seem highly unlikely. The January US CPI figures will be grim reading for the FOMC, though could well have been influenced by one-off factors, such as the typical chunky price rises that are often seen at the start of the year. Given that these figures point to disinflationary progress having stalled, the chances of a more prolonged pause in the easing cycle have now risen.

Source: Bloomberg