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Dec 2022 CPI report shows 6.5% core inflation – what to expect from Fed?

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YEREVAN ( – According to the latest data from the Bureau of Labor Statistics, the December consumer price index (CPI) data stood at 6.5%. Notably, it is the final inflation report before the Federal Reserve’s Feb 1 interest rate decision, which will determine the market sentiment for the upcoming months.

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The inflation rate slowed down to 6.5%.

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According to the report, inflation decreased by only 0.1% compared to Nov 2022 data. The CPI report also stated that the index for gasoline was by far the “largest contributor to the monthly all items decrease, more than offsetting increases in shelter indexes.”

The food index increased 0.3 percent over the month, with the food at home index rising 0.2 percent. The energy index decreased 4.5 percent over the month as the gasoline index declined; Other major energy component indexes increased over the month.

read the statement

FOMC meeting CPI CPI data inflation

KPMG chief economist Diane Swonk commented on the 0.1% decline, albeit noting that the 6.5% inflation is far from the target.

We welcome it with open arms. It’s good news. It’s great, and it helped fuel consumer spending in the fourth quarter. … But it’s still not enough.

said the expert.

Also read: Could Bitcoin Price Drop to $13K in Q1/2023?

More dovish approach from the Fed

At the latest FOMC meeting, officials generally agreed that the hawkish policies would continue “unless inflation is on a sustained downward path to 2%.” Does that mean the interest rate hikes could slow down, given the less-than-expected inflation growth in December?

In view of the persistent and unacceptably high level of inflation, several participants commented that historical experience cautioned against prematurely loosening monetary policy.

stated the minutes.

The officials also noted that the Fed would need to implement “flexibility and optionality” with regard to policy. Notably, the latest increase ended a streak of four consecutive three-quarter point rate hikes. It took the target range for the benchmark fed funds rate to 4.25%-4.5%, its highest level in 15 years.

Also read: FOMC meeting minutes confirm interest rate hikes in 2023 – more pain for stocks ahead.

Traders expected the Central Bank to approve a quarter-point increase at the next meeting on Feb 1. The meeting members agreed that no interest rate cut is in the books for 2023. However, the CPI data at 6.5% could slow down the rate hike , which would have a reviving effect on the economy, spurring the stock market recovery and, by extension, the digital asset sector as well.

Interest rates hike coming in February?

Meanwhile, some economists continue to expect policymakers will increase the target rate by a half percentage point. “Market expectations are just 20% for a 50 basis point hike,” says CNBC. Notably, a basis point equals 0.01 of a percentage point.

Simona Mocuta, the chief economist at State Street Global Advisors, also commented on the importance of the latest data.

It’s amazing how much reaction and overreaction there is for one single data point. Clearly, the CPI is very important. In this particular case, it does have fairly direct policy implications, which are about the size of the next Fed rate hike.

commented Mocuta.

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