- The latest inflation figures had minimal impact on expectations regarding the Fed’s rate cut timing.
- US inflation matched economist estimates, with a 3.1% annual increase.
- Data revealed that British wage growth slowed more than expected.
On Tuesday, US equities reached new yearly highs as the latest inflation figures had minimal impact on expectations regarding the Federal Reserve’s rate cut timing.
US consumer inflation (Source: Bureau of Labor Statistics)
The November Consumer Price Index (CPI) matched economist estimates with a 3.1% annual increase. At the same time, core prices, excluding volatile elements like food and energy, also met expectations, indicating a 4% annual rise.
Month-on-month, consumer prices inched up 0.1% in the last month, contrary to predictions of remaining unchanged. While the market had anticipated a Fed rate cut as early as March, recent data caused traders to revise their expectations, with May now being the target for the first rate cut.
Expectations for a 25 basis points cut in March dropped to 43.7%, down from around 50% before the data release. The market is currently placing a 78% chance of a cut in May, up from about 75% on Monday.
Investors await the Fed’s policy decision on Wednesday and another look at inflation data through the Producer Price Index (PPI). The pan-European STOXX 600 slipped 0.2% as traders reacted to the Fed’s possibility of earlier interest rate cuts.
Meanwhile, Britain’s FTSE 100 closed flat on Tuesday. Soft domestic wage data fueled optimism that the Bank of England would maintain unchanged interest rates this week. Official data revealed that British wage growth slowed more than expected in the three months to the end of October. Still, it remains rapid enough to stop the Bank of England from cutting interest rates anytime soon.
Earnings excluding bonuses recorded a 7.3% year-on-year increase in the three months to October, marking a decline from the 7.8% growth rate in the previous three months. This decrease, the most significant since the three months to November 2021, indicates a cooling of inflationary pressures in the labor market. Economists surveyed by Reuters had anticipated a slightly higher wage growth of 7.4%.
The data reflects broader signs of a slowdown in the UK economy, with analysts suggesting the possibility of a mild recession in the coming months. This prediction aligns with the risks faced by other European nations.