Inflation data raises doubts about whether the Fed will ‘stay on track’: Morning Brief

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Friday 11 November 2022

Today’s newsletter by Jared Bleecker, a market-focused reporter for Yahoo Finance. Follow him on Twitter Tweet embed. Read this and more market news on the go Yahoo Finance Application.

Stocks and bonds had a particularly bullish reaction to new data Thursday shows that inflation remains moderate after hitting a 40-year high during the summer.

dau (^ DJI), Nasdaq (^ ninth), S&P 500 (^ Salafist Group for Preaching and Combatand Russell 2000^ Root(They each had their best day since pandemic lows in 2020. 5- and 10-year Treasuries)^ FVXAnd the ^ degeneration) saw the biggest one-day drop in yields since then-Fed Chairman Ben Bernanke increased quantitative easing again in March 2009.

Any casual observer would be excused into believing that the Fed whipped inflation. While the US is far from its 2% inflation target, inflation fell more than expected last month. The headline CPI rose 0.4% in October against expectations of a 0.6% gain, while the year-over-year measure fell to 7.7% from 7.9%. Using food and energy, core inflation also rose in October, but less than expected.

Federal Reserve Chairman Jerome Powell held a press conference after Powell announced that the Federal Reserve would raise interest rates by three-quarters of a percentage point as part of their ongoing efforts to combat inflation, after the Federal Open Market Committee’s meeting on interest rate policy in Washington, US, November 2, 2022 REUTERS/Elizabeth Frantz

Will this be enough for Federal Reserve Chairman Jay Powell to change his tune and slow the rate hike? Echoes of the “Powell pivot” can be heard across Twitter poetry as stocks surged in every sector and industry. Although inflation remains stubbornly high, CPI prints that came in better than feared have inspired some investors to start taking risks again.

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Optimism throughout 2022 has fueled huge market moves like this one. So far, market participants have misjudged, as new lows in major indices have followed every major rally.

For his part, Powell has vowed to raise interest rates, even if it hurts parts of the economy. In his latest press conference, Powell said emphatically that he is more interested in “solid” inflation than he is in the risks of the Fed continuing on its hawkish path – the main risk being a recession.

This solution has not stopped investors from hoping that the Fed will stop raising interest rates sooner rather than later.

Alfonso “Alf” Picatilo, founder and CEO of Macro Compass, told Yahoo Finance Thursday that the bonds are priced at a low rate on Federal Reserve money — or the rate at which the Fed stops rising. He also highlighted that bond volatility is “falling like a stone” and credit spreads have narrowed. All of these signs are urging investors to take on more risks, at least in the short term.

“With this inflation printed, investors believe the Fed will keep the path lower and lower,” Picatilo said.

What are you watching today

Economie

  • 10:00 a.m. ET: Consumer Confidence at the University of MichiganNovember 1 (expect 59.5, 59.9 over the previous month)

  • 10:00 a.m. ET: U. From Michigan Current ConditionsNov 1 (expect 62.8, 65.6 over the previous month)

  • 10:00 a.m. ET: U. Michigan forecastPre-November (expect 55.5, 56.2 over previous month)

  • 10:00 a.m. ET: The United States of Michigan. Inflated for a yearNovember 1 (expected 5.1%, 5.0% over the previous month)

  • 10:00 a.m. ET: The United States swells Michigan 5-10 yearsNovember 1 (2.9% expected, 2.9% over the previous month)

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earnings

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