Inflation Rises to 3.4%, Stocks Fall
The inflation rate in December was higher than expected, with the Consumer Price Index (CPI) rising 0.3% in December, according to the Bureau of Labor Statistics (BLS). Over the past 12 months, inflation rose 3.4%, up from 3.1% in November and 3.2% in October.
The downward trend in inflation has raised hopes that the Federal Reserve will stop raising interest rates. However, the slight rise in December may have renewed concerns that the tightening cycle is not over or that the path and schedule for rate cuts have changed. As a result, markets fell after the recent inflation print.
What will the Fed do?
Economists had expected inflation to rise 0.2% in December, 0.3% higher than expected, largely due to a 0.5% rise in shelter costs and a 0.4% rise in energy costs. The annual inflation rate for the shelter index in December was 6.2%.
Core inflation, which excludes volatile food and energy prices, also rose 0.3% monthly and 3.9% over the past 12 months. 3.9% is slightly higher than the forecast of 3.8%, but lower than the 4% in November.
Investors will be anxiously waiting to see how inflation numbers will affect the Federal Reserve’s stance at its next meeting to discuss interest rates on January 30-31. Two Federal Reserve chairs, Loretta Mester of Cleveland and Tom Barkin of Richmond, shared some of their thoughts with Bloomberg on Thursday.
“I think March is too early to estimate a decline in interest rates,” Mester told Bloomberg, according to Reuters. “I think the December CPI report shows that there is more work to be done and that work will take a restrictive monetary policy.”
In a speech last week, Richmond Fed President Barkin told the audience, “Focus more on the flight path than the rate path. Is inflation continuing to fall and is the overall economy continuing to fly smoothly?” Confidence in both questions will determine the speed and timing of interest rate changes.”
Asked by Bloomberg about the CPI numbers on Thursday, Barkin reiterated that he needed confidence that inflation had reached the 2% target before starting to cut interest rates.
Coinbase falls, Netflix rises
Another big news this week is that 11 new spot Bitcoin exchange-traded products (ETPs) have begun trading after the SEC finally approved them after repeated rejections. Bitcoin prices surged to around $49,000 on Thursday, but fell to around $46,500 in the afternoon.
but, Coinbase Global (NASDAQ:COIN) was one of the biggest decliners on the day, down about 6.4% to $141 per share. Coinbase, an exchange for trading Bitcoin and other cryptocurrencies, is likely to be canceled due to the approval of Bitcoin ETP. Investors may have viewed the approval as making exchanges less important now that ETPs can be obtained from more places. However, this is probably a short-term reaction because in the long run, Coinbase will benefit from increased investment in Bitcoin.
One of the advantages of the ledger, netflix (NASDAQ:NFLX) was one of the big winners on Thursday, with its stock rising nearly 3% to about $492 per share at the Consumer Electronics Show in Las Vegas on news that monthly active subscribers around the world are receiving advertising. The support tier jumped to $23 million. This is a significant increase from $15 million in November.
