Sticky inflation muddies water for Fed

[Pelican Press 0]

Sticky inflation muddies water for Fed

A man shops for fruit at a grocery store on February 01, 2023 in New York City.

Leonardo Munoz | Corbis News | Getty Images

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

Stocks rally
Wall Street closed higher on Tuesday with the S&P 500 hitting a fresh record, up 1.1%. The blue-chip Dow gained over 200 points, while the Nasdaq added 1.5% as U.S. inflation data came in mildly higher than expected in February. 

Record shareholder payouts
Shareholder payouts hit a record $1.7 trillion last year, according to a new report by British asset manager Janus Henderson. Nearly half of the world’s total dividend growth came from the banking sector, which delivered record payouts as rising borrowing costs lifted lenders’ margins, the report found. 

Boeing crisis hurt airlines
CEOs from several airlines say Boeing’s delivery delays have forced the carriers to change their growth plans. Boeing’s crisis has deepened since a door plug blew out midflight from an Alaska Airlines Max 9 in January. Southwest Airlines, Alaska Airlines and *******, are some of the top buyers of Boeing’s aircraft that have been impacted by its problems.

Citadel on rate cuts
Inflation headwinds remain and the Fed shouldn’t cut rates too quickly, says Citadel founder and CEO Ken Griffin. “If I’m them, I don’t want to cut too quickly,” he noted, adding that it will be “more devastating” if they have to change direction after initially cutting rates. “I think they are going to be a bit slower than what people were expecting two months ago in cutting rates.”

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The bottom line

Once again, inflation came in hot for a second straight month.   

February’s consumer prices data was a touch better than January’s troubling inflation print. 

Still, core inflation — which excludes food and energy — was stronger than expected, up 0.4% last month, which reflects lingering stickiness in price pressures.

Investors don’t expect that latest data to move the needle on the Fed cutting rates in June. That could be why markets have had a more muted reaction to the news.

“We have the numbers we have and this wasn’t great news for the Fed but markets don’t see it as a big threat to rate cuts later in the year,” Kathy Jones, chief fixed income strategist at Charles Schwab,

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Yet, the hot print poses a problem for the Fed and muddies the water for its deliberations on the coming rate cuts.

“The long-term disinflation trajectory probably has not changed, but the path to the Federal Reserve’s 2% target will be choppy,” noted LPL Financial chief economist Jeffrey ******. “Expect to see markets struggle with what this means for Fed policy.”

There is a lot riding for Wall Street when the central bank meets next week. Investors’ main focus will be on whether the Fed will continue to pencil in three rates for this year or will officials decide to change course.

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