Key Inflation Report Didn’t Shake Markets – By Newser Editors and Wire Services (Newser) / Feb 14, 2023
Indexes dropped slightly after report suggested inflation is cooling more slowly than hoped
Stocks ended mixed on Wall Street following several sharp reversals after a report suggested inflation may not be slowing as quickly and as smoothly as hoped. The S&P 500 closed virtually unchanged Tuesday after swinging between losses and gains throughout the day. The index fell 1.16 points, less than 0.1%, to 4,136.13. The Dow Jones Industrial Average fell 156.66 points, or 0.5%, to 34,089.27. The Nasdaq composite rose 68.36 points, or 0.6%, to 11,960.15. The bond market was more decisive, with yields climbing as investors braced for the Federal Reserve to get firmer on interest rates to combat inflation. Analysts said the report shows the long road ahead for the Fed in getting inflation down to its 2% target.
The report was so hotly anticipated because inflation and the Federal Reserve’s response to it have been at the center of Wall Street’s struggles for more than a year. Inflation has been cooling since a summertime peak, and investors are trying to guess how quickly and smoothly it could decline to the Fed’s 2% target. Tuesday’s report showed that inflation slowed to 6.4% in January from its peak of 9.1% in June, the AP reports. The hope on Wall Street has been for a continuing slowdown to get the Federal Reserve to pause its hikes to interest rates and perhaps begin contemplating cuts to them. Nearly half of January’s month-over-month inflation came from an area where Fed Chair Jerome Powell has said he sees easing pressure in the pipeline: housing and other shelter-related prices.
But on the downside for markets, the improvement in inflation wasn’t by as much as economists expected. That could encourage the Fed to be more aggressive on interest rates. The Fed has indicated it envisions at least a couple more increases before holding rates at a high level for a while. “While inflation is heading in the right direction, there is a long and bumpy road ahead to price stability,” said Andrew Patterson, senior economist at Vanguard. Even after ignoring the effects of prices for food and energy, which can swing more sharply than others, what’s called “core inflation” was still slightly higher than expected last month. Such strength “suggests that the Fed has a lot more work to do to bring inflation back to 2%,” said Maria Vassalou at Goldman Sachs Asset Management.