- The Fed’s war against inflation will likely continue as US consumer prices increase.
- Investors will keenly monitor January retail sales data for clues on consumer spending.
- Employment in the eurozone increased twice as quickly as predicted last quarter.
The US consumer price data for January didn’t change much about what people thought the Federal Reserve would do with interest rates, so Wall Street closed flat on Tuesday.
The Fed’s fight against inflation will go on as long as consumer prices in the US keep going up and rent costs keep going up.
Interest rates are predicted to reach their peak of 5.28% by July, with money market traders wagering on at least two additional 25 basis point rate increases this year.
Lorie Logan, president of the Dallas Fed, and Thomas Barkin, president of the Richmond Fed, both said things that made investors nervous. Barkin argued that the Fed should lower inflation ahead of threats to American economic growth.
Wall Street enjoyed a positive start to the year thanks to a revived interest in volatile growth stocks, which had taken a beating in 2022 as the Fed aggressively raised rates to put sky-high prices under control.
However, the surge halted last week due to indications of a tight job market and aggressive remarks from Fed governors.
The Nasdaq Composite Index has recovered nearly 14%, and the S&P 500 has gained about 8% in 2023.
Wednesday’s report on January retail sales will be closely watched by investors who are worried about a slowdown in the economy.
Following positive company reports, European equities slightly increased at the close on Tuesday, but most of their early gains were lost as investors analyzed conflicting US inflation data.
European markets reacted to the US inflation numbers because they thought the European Central Bank (ECB) and the Bank of England would follow the Fed’s monetary policy decisions.
Locally, data showed that employment in the eurozone grew twice as fast as expected last quarter. This suggests that inflationary pressures are stronger than expected, which could keep interest rates high for longer.
Gabriel Makhlouf, a member of the ECB’s governing council, has stated that the bank may raise interest rates above 3.5% and is unlikely to cut rates this year.
Because of higher-than-expected earnings and a more optimistic view of the eurozone economy, the STOXX 600 has increased 8.8% so far this year.