An inflation data without surprises in the US contains the euphoria of Wall Street

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The United States Federal Reserve (Fed) found this Thursday another reason to lower its restrictive tone in 2023. The December Consumer Price Index (CPI) in the United States cfell to 6.5% from 7.1% the previous month. A figure that agreed with the projections made by the market and that also coincided with the evolution of the underlying CPI (at 5.7%), which rules out energy and basic food and stands at levels not seen in almost a year.

However, the evolution of prices in the United States did not raise market optimism and contained the euphoria on Wall Street. The publication of the data halted the rises in Europe, which at the close of the session confirmed that the inflation reduction alone is not reason enough for the Fed to ease its interest rate hikes.

Even so, the European stock markets closed positively with the Ibex 35 as the clear beneficiary of this Thursday after rising 1.2% and scoring its best New Year’s rally in almost 20 years. More modest increases were noted for the EuroStoxx 50, with 0.7%, or the German Dax, which rose 0.7%. In this way, the main references of the Old Continent (except the selective Spanish) They continue to trade at maximums not seen in more than eleven months.

On the contrary, Wall Street reacted to inflation in December in the United States with hesitations and timid rises. At the close of the European markets the S&P 500 rose 0.4% and it was at the gates of 4,000 points, a resistance that must be overcome, according to the Ecotrader analyst, Joan Cabrero, for the bullish counterattack to be successful on Wall Street.

The market expected a surprise in the CPI data for December and a much steeper drop in prices than seen this Thursday that would force the Fed to change its discourse, according to firms such as Pimco or Global X. “The Fed is leaving running out of arguments to continue rising aggressively and investors are convinced that the next rise will not be 50”, explained the investment director of ING, Francisco Quintana. Thus, it would only be necessary for the Unemployment in the country comes out of almost 50-year lows (unemployment rate at 3.5%) to disprove Fed Chairman Jerome Powell’s theory that his policies have not affected the economy enough to date to slow down.

But for now, the US Federal Reserve is holding firm and not expecting a rate cut this year. In fact, the latest statements released from within the Fed do not rule out the possibility of seeing the interest rates above 5% while the market discounts two consecutive hikes of 25 basis points, according to Bloomberg, starting from the February meeting.

The contribution of energy

The fall in energy prices has contributed the most to reducing US inflation since June, when the CPI reached 9.1%. In contrast, house prices (which account for almost a third of the total for this indicator in the country) continue to push upwards. Disinflation continues to be held back by housing, which will take several months to take into account the already visible adjustment in rents and real estate prices, Ostrum AM.

From here, the reduction in prices will be less pronounced, according to the market. The forecast of Bloomberg points out that inflation in the United States will fall to 3.3% from the third quarter of the year (almost half of the last data published) but it will not be until much beyond 2024 when the data approaches the 2% target of the Fed. The analyst of BloombergAnna Wong, fixes her attention on the last 100 basis points up to that 2% where energy prices will no longer be as decisive as deflationary elements and where the role of the Federal Reserve will be more relevant.

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