Is the interest rate turnaround shifting?
US inflation remains unexpectedly stubborn
February 13, 2024, 8:30 p.m
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The rise in consumer prices in the USA slowed less in January than was generally expected. The rate is still above the three percent mark. This makes it unlikely that key interest rates will be cut in the near future. Prices on the stock exchanges are slipping into the red.
Inflationary pressure in the USA is only slowly easing and is dampening hopes on the financial markets for an early interest rate turnaround. Consumer prices rose 3.1 percent in January compared to the same month last year, the Labor Department said. In the previous month the value was 3.4 percent. Economists had expected the rate to fall to 2.9 percent. On the futures markets, an interest rate cut by the US Federal Reserve is not expected until June. Prices fell across the board on the stock markets.
At its most recent meeting, the key interest rate was left in the range of 5.25 to 5.50 percent. According to Fed Chairman Jerome Powell, the central bank has made progress. But she wants to see further “good data” that points in this direction on the way to a turnaround in interest rates. The problem here is precisely the so-called core rate, which excludes the fluctuation-prone costs for energy and food: contrary to expectations, it remained at the previous month’s value of 3.9 percent in January. Experts had expected a decline to 3.7 percent. The central bank pays particular attention to this indicator because it reflects underlying inflation trends well.
“The January data are causing a setback in the downward trend in inflation,” said Commerzbank experts Christoph Balz and Bernd Weidensteiner. “Since October 2023, the trend towards easing on the inflation front has almost come to a standstill on balance,” is the conclusion of LBBW economist Elmar Völker. On the other hand, core inflation “after deducting the dominant housing costs” is close to the Fed’s stability target at 2.2 percent: “The data published today is, however, a further severe damper on any hopes that the US Federal Reserve will quickly achieve its goals “We are currently not expecting the monetary policy reversal before June 2024.”
These prospects were not well received by investors. The DAX and the EuroStoxx50 extended their earlier losses. Gold and US government bonds also flew out of the depots. The yield on ten-year bonds rose to 4.275 percent in return for the falling price. The dollar index, on the other hand, turned positive and gained half a percent to 104.646 points.
Interest rate-sensitive technology stocks and real estate stocks are particularly sensitive to US consumer prices. In the DAX, Infineon is down 5.4 percent, SAP is down 3.3 percent and Vonovia is down 2.5 percent. The Dow Jones Index starts in the red, as does the broader S&P 500. The decline in the more technology-heavy Nasdaq index is even more pronounced.