ClearBridge Investments’ Head of Economic and Market Strategy, Jeff Schulze has provided comments following the release of US data overnight:
“The ‘wait and see’ Fed is going to be waiting longer than anticipated after a red-hot January CPI inflation report. Prices jumped more than expected and in a broad-based fashion which is consistent with yesterday’s comments from Chair Powell that the Fed is not “in a hurry” to adjust interest rates. This report puts the final nail in the coffin for the rate cut cycle, which we believe is over.
“One thing that stands out in today’s print is that travel-related categories such as airfares, lodging away from home (hotels), and auto rentals all saw large pickups in inflation last month. Strength in these areas implies a healthy consumer, as these categories are largely discretionary in nature.
“While price increases tend to be larger in the early portion of the year due to the “January effect” whereby companies tend to make larger price adjustments, dis-inflation has largely stalled over the past 2-3 quarters. Should this month’s hotter and broader reading portend a resurgence in inflation in the coming months, the Fed could end up needing to raise interest rates in the second half of 2025.
“Today’s hotter print shifts investor expectations for monetary policy, which lends to upward pressure on long-term interest rates and downward pressure on equities. Not all equities are impacted equally, however, with more indebted companies facing headwinds from higher rates while others will ultimately benefit from higher revenues as they are able to charge more for their products. We believe value should outperform growth in such an environment.”
Notes: The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. For more detail, click here.
