Government report reveals that inflation is not cooling as the Fed had hoped

Today a government report confirmed what consumers, especially those on fixed incomes have felt as they paid for essential goods and services such as food, shelter, and energy, and that is that costs continue to rise.

Today the Bureau of Labor Statistics released its most current inflationary data for December 2023 stating that, “The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in December on a seasonally adjusted basis, after rising 0.1 percent in November, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased by 3.4 percent before seasonal adjustment.

The index for shelter continued to rise in December, contributing over half of the monthly all items increase. The energy index rose 0.4 percent over the month as increases in the electricity index and the gasoline index more than offset a decrease in the natural gas index. The food index increased 0.2 percent in December, as it did in November. The index for food at home increased 0.1 percent over the month and the index for food away from home rose 0.3 percent.”

The report shows that both monthly and annual numbers for inflation in December were higher than inflationary pressures for November. The numbers revealed today were fractionally above economists’ forecasts. This created extreme volatility and price swings in US equities, the dollar, and the precious metals.

This report shows that the Federal Reserve still has work to do, as it has tightened its monetary policy to reduce inflationary pressures and move inflation to its 2% target. Last month the Federal Reserve released its SEP (Summary of Economic Projections) which contained the most recent “dot plot” that revealed that the majority of Federal Reserve officials anticipate cutting interest rates by three-quarters of a percent this year. However, there was no mention as to the timing of upcoming rate cuts, along with a clear message that these projections are data dependent, and the Fed is ready to react if the data suggests that inflation is not moving in their desired direction.

Contrary to what some would logically assume according to the CME’s FedWatch tool, the probability that the Federal Reserve will implement its first rate cut in March rose from 64.7% yesterday to 71.8% today.

Gold futures opened at $2029.40 in New York, traded to a high of $2056.10, and a low of $2017.30. As of 5:21 PM ET, the most active February futures contract is currently trading down $8.60 or a decline of 0.42% and fixed at $2019.20 just a couple of dollars off of today’s intraday low. The same volatility appeared in the dollar trading to a high today of 102.793, a low of 102.183, and settling near the lower range of today’s price swings at 102.338 which is down 0.02%. Silver plunged by 1.57% or $0.36 taking the most active March contract to $22.70.

Market participants will have to wait till the Federal Reserve reconvenes at the end of this month with the first FOMC meeting of 2024. However, this most recent inflationary data could most certainly bring out a much more hawkish tone than was conveyed during the December FOMC meeting.

Wishing you as always good trading,