On February 10th, Eastern Time, the U.S. Department of Labor disclosed January inflation data. The U.S. non-seasonally adjusted CPI increased by 7.5% year-on-year in January, setting a new high in 40 years. The probability of the Federal Reserve accelerating the tightening of monetary policy has greatly increased.
On that day, the Dow Jones Industrial Average fell 1.47% to 35241.59 points; the S&P 500 Index fell 1.81% to 4504.08 points; the Nasdaq fell 2.1% to 14185.64 points.
Data source: Wind
U.S. large technology stocks fell across the board, with Apple falling 2.34%, Amazon falling 1.36%, Netflix falling 1.6%, Google parent company Alphabet falling 2.1%, Facebook falling 1.69%, and Microsoft falling 2.84%.
1 CPI data once again "exploded"
On Thursday local time, the US CPI data for January was released. Data from the U.S. Department of Labor showed that the U.S. non-seasonally adjusted CPI annual rate (year-on-year growth) recorded 7.5% in January, higher than the expected 7.30% and the previous value of 7%, setting a new high since February 1982. The non-seasonally adjusted core CPI annual rate in the United States in January was 6%, a new high since September 1982. The expected value and the previous value were 5.90% and 5.50% respectively. The seasonally adjusted monthly CPI rate (month-on-month growth) in the United States in January was 0.6%, higher than the expected 0.5%, and the previous value was revised up to 0.6%.
Data released by the U.S. Department of Labor on Thursday also showed that the number of people applying for unemployment benefits for the first time in the week ended February 5 was 223,000, a decrease of about 16,000 from the previous statistical week and lower than the 230,000 expected by economists.
U.S. Treasury yields surged and stock index futures fell after the release of the inflation data. Market participants believe that January's CPI data significantly increases the probability that the Federal Reserve will accelerate tightening of monetary policy. Some industry insiders believe that this data means that the U.S. inflation rate has exceeded 5% for eight consecutive months, and prices of various goods and services have generally risen sharply. After the
data was released, the trend of U.S. interest rate futures suggested that the market is betting that the possibility of the Federal Reserve raising interest rates by 50 basis points at the March meeting has risen to 43% from less than 30% before, with nearly 6 interest rate hikes this year.
Fed officials support a 50 basis point interest rate hike
Insiders pointed out that the Fed's strategy seems to be to quickly reach a neutral position without causing too much market disturbance. Since interest rate market expectations for a 50 basis point interest rate hike in March are already high, the Fed is happy to follow suit.
Subadra Rajappa, head of U.S. interest rate strategy at Societe Generale in New York, said the CPI data once again emphasized the urgency for the Fed to take action, with the market almost fully pricing in the possibility of raising interest rates at every meeting between now and July.
St. Louis Federal Reserve President James Bullard said he supports a cumulative 100 basis points of interest rate hikes by early July, including a one-time 50 basis points hike for the first time since 2000, to combat the worst inflation in four decades.
Bullard, who has voting rights on monetary policy this year, said in an interview on Thursday that he has not yet decided whether to raise interest rates by 50 basis points at the March meeting and will respect Federal Reserve Chairman Powell's decision on this issue. Powell said at a press conference in January that he would not rule out the possibility of doing so.
Faced with worrying inflationary pressures, Bullard also raised the possibility that the Fed would consider adjusting interest rates between regular meetings. He emphasized that policymakers are still focused on the March 15-16 meeting and have committed to ending the asset purchase program before starting to raise interest rates.
Bullard said he supports a significant reduction in the balance sheet at a rate equivalent to the Fed's expansion. Before turning to tapering at the end of last year, the Fed was adding a combined monthly holdings of U.S. Treasury bonds and mortgage-backed securities (MBS) to a total of $120 billion.
Editor: Yu Hongbo
