The U.S. Labor Department released the consumer price index (CPI) report on Tuesday. Although inflation increased in February year-over-year, the rise was expected, and the annual inflation rate for all items was 6%. The cooling inflation has eased some concerns, but fears of financial contagion have spread. Market strategists are further anticipating the U.S. central bank’s decision regarding the federal funds rate.
Market Awaits Fed’s Decision on Interest Rates After CPI Report
In February, inflation was consistent with expectations, with the consumer price index (CPI) increasing by 0.4% last month, equating to a 6% annual pace, according to the latest report from the U.S. Bureau of Labor Statistics. “Over the last 12 months, the all-items index increased by 6% before seasonal adjustment,” the CPI report states. “The index for shelter was the primary contributor to the monthly all-items increase, accounting for over 70% of the rise, while the indexes for food, recreation, and household furnishings and operations also contributed.”
The overall sentiment of the equity market has improved as three of the four U.S. benchmark stock indexes, except for the Russell 2000, saw gains. However, on Monday, three of the four benchmark indexes were down, except for the Nasdaq Composite. Additionally, Monday marked the largest three-day decline in the two-year Treasury yield since “Black Monday” in 1987. However, on Tuesday, following the CPI report, the two-year Treasury yield rebounded.
According to Kevin Cummins, chief U.S. economist at Natwest Markets, although consumer inflation has decreased, it did not significantly impact the market. “As far as how important we thought this one [CPI] was going to be, it definitely now is not nearly as much of a market mover, given the backdrop,” Cummins stated in an interview with CNBC. The Natwest Markets analyst also anticipates that the Fed will not raise the federal funds rate in March. While equity markets showed some improvement after the Labor Department’s CPI report was released, precious metals like gold and silver experienced a small dip at 9:00 a.m. (ET) on Tuesday.
The day prior, on Monday, the price of gold rose by 2%, and the cost of silver per ounce increased by 6% against the U.S. dollar. However, according to the New York Spot Price, both precious metals experienced a decline at 9:00 a.m. on Tuesday, with gold falling by 0.80% and silver decreasing by 0.71%. Conversely, cryptocurrencies saw a significant rebound, with the global crypto market cap increasing by 11.17% to $1.13 trillion. Bitcoin (BTC) rose by 14.72% above the $26,000 per unit zone, and the second-leading crypto asset, ethereum (ETH), spiked 8.43% higher to $1,744 per ether.
What do you think will be the U.S. central bank’s decision regarding the federal funds rate, and how do you think it will affect the overall economy and financial markets? Share your thoughts in the comments below.