Inflation Muted, Fed ‘Patient’ on Interest Rate Hikes

Inflation Muted, Fed ‘Patient’ on Interest Rate Hikes

$DIA, $SPY, $QQQ, $RUTX, $VXX

US wholesale prices fell last month on a steep fall in gasoline prices suggesting that inflation will remain tame in the coming months.

The Labor Department said that the producer price index, which tracks cost changes before they reach the consumer fell 0.2% in December from the prior month. The drop follows a 0.1% increase in November.

Wholesale prices rose 2.5% in December from a year earlier, the same 12-month increase as in November. Excluding the volatile food and energy categories, core prices increased 2.7%

The Key takeaway from the report is that producer price inflation is moderating, which suggest to the market’s mind that consumer price inflation is going to as well.

Not all those cost increases at the wholesale level are passed onto American shoppers. The consumer price index increased just 1.9% in December from a year earlier, the Labor Department said last week.

The data indicates that inflation is tame, despite steady economic growth and a very low unemployment rate.

A strong economy can sometimes push up inflation, which then spurs the Fed to raise the short-term interest rate it controls in order to slow growth and keep prices in check.

Fed Chairman Powell has said the muted inflation figures have allowed the Fed to remain “patient” when it comes to its next interest rate hike. Fed policymakers have forecast 2 rate hikes this year, after lifting rates 4X in Y 2018.

Recent volatility in the financial markets and concerns about a slowing global economy have led analysts to predict that Fed policymakers may hold off on lifting rates at all this year.

The Fed’s preferred inflation gauge, a separate index tied to consumer purchases, has increased just 1.8% in the past year. That’s below the Fed’s inflation target of 2%. The Fed wants some inflation to guard against deflation, a damaging fall in prices and wages.

Wholesale gasoline prices dove 13.1% in December, offsetting a 2.6% increase in food prices. The cost of fresh fruits soared nearly 50% last month, the government said.

The prices of beef, wireless phone plans, and transportation and warehouse services all fell.

Tuesday, the major US stock market indexes finished at: DJIA +155.75 at 24065.59, NAS Comp +117.92 at 7023.85, S&P 500 +27.69 at 2610.26

Volume: Trade on the NYSE came in at 870-M/shares exchanged

  • Russell 2000 +7.2% YTD
  • NAS Comp +5.9% YTD
  • S&P 500 +4.1% YTD
  • DJIA +3.2% YTD

HeffX-LTN’s overall technical analysis of the major US stock market indexes is Neutral in here.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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