Interest-rate cuts are still in the offing in the US, but you might not think so with the way bonds are selling off after Tuesday’s inflation report. The latest consumer price index reading indicated that core prices — excluding volatile food and energy — rose 0.4% in January from a month earlier, exceeding the median economist forecast. Yields on 10-year notes hit the highest level since November.
The report was very poorly timed. It comes not long after Federal Reserve Chair Jerome Powell said he needed to see more evidence of disinflation to start reducing policy rates, and Tuesday’s report sure didn’t look — at least on the surface — like the sort of evidence required. In reality, there’s a chance that the “January effect” and quirky housing statistics drove most of the miss. There’s still plenty of time for the data to evolve in a manner that makes the Fed comfortable cutting in May.
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