The Consumer Price Index (CPI) came in slightly above previous projections causing significant stock selloffs. The Labor Department reported that January inflation rose 3.1% year-over-year versus 3.4% in December. Despite the pace of inflation slowing, the projection of 2.9% was missed. This prompted the stock selloffs that left all three major U.S. Stock indexes lower. In addition, every sector of the S&P 500 finished lower. The 10-year treasury closed at a 2-month high at 4.315%.

Consumers hoping for rate cuts in March will most likely be left disappointed. For the first time this year, markets are now pricing-in just 4 interest rate cuts in 2024. Six weeks ago, markets were expecting 6 interest rate cuts. The timing of the first rate cut now appears to be June 2024 at the earliest.

Stock gains over the past 90 days have been fueled by the idea rate cuts were imminent. The January report dispels that idea. The next Fed meeting is March 19-20 with the goal of 2% inflation still the target number. Core inflation, which excludes food and energy, was up 3.9%. This is higher than previously expected.

Goldman Sachs economists warned that we may see an increase in January, and it appears to be an accurate premonition. Their reasoning was due to how certain prices reset at the beginning of the calendar year. Because inflation has been high in recent years, they flagged the risk that prices might be stronger in January as some turn-of-the-year price increases effectively “catch up” to a higher than usual level as reported by the Wall Street Journal.

It remains to be seen where inflation may be heading. However, if the stubborn numbers of January prove to be nothing more than price resets and February and March inflation numbers soften, then Tuesday’s January report will have small implications in future Fed decisions.

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