Last High-Impact Economic Report Before March 22 Fed Meeting: Inflation Expected to Slow
This week’s economic data will be the last high-impact report before the Federal Reserve’s upcoming March 22 policy meeting, giving the central bank a more comprehensive view of the U.S. economy ahead of its decision.[0] The Consumer Price Index report is expected to show that inflation cooled slightly in February, with headline inflation forecast to rise 6% over the prior year, a slowdown from January's 6.4% annual gain, according to estimates from Bloomberg.[0] The core CPI, which excludes volatile food and energy prices, is seen at 5.5% from 5.6% in the prior month.[1]
On a monthly basis, the CPI is forecast at 0.4%, while the core CPI is also expected at 0.4%.[2] The New York Fed's monthly survey of consumer expectations, released today, showed a decrease in inflation expectations at the short-term horizon, while expectations about labor market conditions improved.[3]
In the upcoming week, February's numbers on retail sales, producer price inflation, housing starts and industrial production will also be observed.[4] Markets are pricing in an ~80% chance the Fed raise rates by 25 basis points at its March 22 policy meeting with a ~25% chance the Fed leaves rates unchanged, according to data from the CME Group.
In order to reduce inflation, the Federal Reserve has raised its benchmark interest rate target from 4.5%-4.75% to a cumulative 4.5% over the last twelve months. The highest consumer prices in approximately 40 years were reached last summer, reaching a rate of 9.1%.[5] At the beginning of the week, Jerome Powell, the Chair of the Federal Reserve, announced that if the economy continues to demonstrate its strength after the implementation of the monetary policy, the central bank is likely to increase interest rates higher than anticipated. Despite this, he has yet to make a call regarding the March meeting.
According to the CME FedWatch Tool, the market is divided on the anticipated rise of the federal-funds effective rate at the Fed's upcoming meeting on March 22nd: 55% of the market is expecting a 0.25 percentage point increase, while 45% is predicting a 0.50 percentage point rise. Last week, only 28% of market participants predicted the Federal Reserve would raise rates by 0.50 percent.[6]
0. “More Inflation Data Is Coming. What to Expect From Today's CPI Report.” Barron's, 14 Mar. 2023, https://www.barrons.com/articles/february-cpi-inflation-data-report-today-ea428646
1. “Expectations For 0.5% Interest Rate Hike Vanish Ahead Of Critical CPI Data Expected To Shape Fed Decision” Benzinga, 13 Mar. 2023, https://www.benzinga.com/news/23/03/31325688/expectations-for-0-5-interest-rate-hike-vanish-ahead-of-critical-cpi-data-expected-to-shape-fed-deci
2. “All eyes on US inflation data, bank analysts expect sticky figures” FXStreet, 14 Mar. 2023, https://www.fxstreet.com/news/us-inflation-forecast-easing-only-slowly-still-sticky-previews-by-10-banks-202303131227
3. “Short-Term Inflation Expectations Decline Sharply; Labor Market Expectations Improve” Forex Factory, 13 Mar. 2023, https://www.forexfactory.com/news/1210340-short-term-inflation-expectations-decline-sharply-labor-market-expectations
4. “Top 5 things to watch in markets in the week ahead By Investing.com” Investing.com, 12 Mar. 2023, https://www.investing.com/news/economy/top-5-things-to-watch-in-markets-in-the-week-ahead-3028260
5. “Inflation data arrives at critical moment for Fed after bank failures, jobs data” Yahoo News, 13 Mar. 2023, https://news.yahoo.com/inflation-data-arrives-at-critical-moment-for-fed-after-bank-failures-jobs-data-192322720.html
6. “Markets Brief: The February CPI Report Holds the Key to the Fed's Next Move” Morningstar, 10 Mar. 2023, https://www.morningstar.com/articles/1143551/markets-brief-the-february-cpi-report-holds-the-key-to-the-feds-next-move
