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The Fed has clearly indicated there will be no monetary expansion this year. While assets such as SPX and gold remain strong, negativity is increasing in cryptocurrencies. Concerns over inflation as the target drifts away, combined with Trump’s tariffs, have pushed predictions for the first interest rate cut of the year to July. Here is what you need to know before the inflation report arrives in a few hours.
U.S. Inflation Report
The U.S. inflation report for January will be released tomorrow. Amid worries that the Fed will miss its inflation target, investors are anxious. Experts expect that inflation will not significantly change compared to December. However, there is hope that the upcoming data will signal the Fed’s potential to begin cutting interest rates again.
Bank of America economist Stephen Juneau has expressed concerns that the risks surrounding inflation are skewed to the upside. Indeed, recent statements from Fed members align with this sentiment.
“Inflation is above the target, risks are to the upside, economic activity is strong, and the labor market seems stable around full employment. If our January CPI forecast comes true, the Fed’s pause will be further solidified,” he stated.
Inflation and Interest Rates: Expert Opinions
According to CME Group data, investors expect the Fed to implement a quarter-point rate cut in July, followed by another pause. This expectation has shifted from May to July, previously set for September. Hence, forecasts are changing rapidly.
Dow Jones expects a monthly increase of 0.3% and an annual increase of 2.9% for the January CPI. The annual expectation for core inflation, excluding food and energy costs, is set at 3.1%. According to Goldman Sachs, we will see increases in automobile prices and insurance costs reflected in January data, while housing costs are expected to exert weak downward pressure.
Goldman economists noted in their latest forecasts that, “Moving forward, due to rebalancing in the automobile, rental, and labor markets, we anticipate more disinflation throughout the year, although there may be a balancing act due to rising tariff policies.”
If the data aligns and Trump’s tariffs do not yield unexpectedly negative short-term results, confidence in combating inflation may increase. What if Trump decides to negotiate? Such negotiations seem unlikely for now, and even Powell has begun to state that free trade greatly benefits countries outside the U.S., which makes him appear to support Trump.
