US CPI data for the month of December will be released by the U.S. Bureau of Labor Statistics on January 12, 2023. Meanwhile, traders and investors are taking a shot at the December inflation numbers after witnessing a cooling down in November figures.
Markets, meanwhile are taking a breather but trading in green ahead of the inflation data announcement on Thursday. “The opening of China has brought a breeze of optimism in the US equity market as sentiments seem to be uplifted among traders. It is reflected in the upward trajectory on Wall Street,” says Kunal Sawhney, CEO, Kalkine Group.
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The November 2022 consumer price index was cooler than expected at 7.1%,(expectation was 7.3%) a sign inflation is moderating from its highest level in decades. The November CPI reading was the smallest 12-month increase since December 2021, and it was down from 7.7% in October.
A lower CPI data for December to be released on Thursday this week at 8:30 A.M. Eastern Time may infuse confidence in investors that US Fed may remain less aggressive in bringing inflation under its target of 2%.
Meanwhile, Fed chief Powell is speaking today in Sweden and investors globally will be keeping a close watch on it.
Also Read: US Fed Chair Powell speaks today in Sweden; investors look for cues ahead
The US Fed could be still concerned about the higher core inflation statistics, and any significant cooling may encourage bulls to return to the market. The price of most commodities categories has peaked in recent months, while the price of services is still rising.
The US December inflation report, which is due on Thursday, will be on traders’ minds after last week’s jobs data, which showed wage rises were modest and unemployment at its lowest level in decades.
The risk of inflation making a comeback still exists. In a recent tweet, “Big Short” investor Michael Burry issues a warning about the return of inflation. The economy is growing too quickly, and the labour market is too strong, to allow inflation to return to target in the time frame desired by the Fed to avoid it becoming embedded in consumer and business expectations. If the recession is severe, the Fed may again resort to QE policies and inflation may make a comeback.
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Rates will continue to grow in 2023, according to the US Federal Reserve, and any rate cuts may only take place in 2024. It is the job market that is posing challenges to the Fed’s monetary actions. Esther George of the Kansas City Federal Reserve warned on Friday that authorities would have challenges in balancing employment and inflation, despite earlier predictions that rates would rise and stay there for a longer period of time.
JPMorgan Asset Management’s chief global strategist, David Kelly, believes that inflation will continue to fall in 2023, allowing the US economy to avoid a recession.
Most analysts and investors are erring on the side of caution after an almost 20% decline in global markets last year, forecasting that historically high inflation is here to stay and a recession is inevitable. Kelly predicts that following the March meeting, the Federal Reserve will stop raising rates historically and start lowering them in the fourth quarter. Kelly also thinks that the market’s pessimism may present excellent opportunities to acquire US-value companies and investment-grade credit at deep discounts.