Today’s US inflation print came in hotter than expected.

The headline release slowed to 3.1% in the twelve months to January, down from 3.4% in December though above economists’ estimates of 2.9% (median forecast). Year-over-year core inflation matched December’s release at 3.9%, 0.2 percentage points north of the market’s median estimate of 3.7%. Month-over-month data also matched December’s release on the headline level at 0.3% (expectations were for CPI to slow to 0.2%), while core inflation surpassed both prior and the median estimate (0.3%) at 0.4%.

Inflation Cooling but Not as Fast as Expected

It is clear from the release that inflation is not cooling as fast as we thought it may, but to be frank, it is still cooling.

The release emphasises stickiness and helps seal the deal for a hold at March’s policy-setting meeting, aligning with the Fed pushing back against a March cut. It also places a bold question mark on May’s policy meeting for a 25bp rate cut. In fact, according to BBG’s WIRP function, approximately 11bps of cuts are now priced in for May (35% probability priced for a 25bp cut) versus 27bps in June. With wages and job growth, along with economic activity still running hot and sticky inflation, the Fed will be in no rush to cut rates, hence the hawkish repricing we’ve seen.

Bloomberg

Following the report, the US Dollar Index punched higher, clearing offers at daily resistance from 104.15 and throwing light on a nearby daily resistance level at 105.04, a level accompanied closely by a daily channel resistance taken from the high of 103.69. You may recall that the FP Markets Research Team released a post on the US Dollar Index recently, explaining the possibility of leaving neighbouring support behind at 103.62 and pencilling in a breakout higher.

Major US equity index futures plunged in the immediate aftermath of the release (it is quite the picture—see chart below), with US Treasury yields breaking out to the upside; the benchmark 10-year yield ventured north of the 4.200% level and has refreshed YTD highs of 4.297%.

US Equity Index Futures

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