U.S. Inflation Doing A Crab Walk, And Fed Feels The Pinch

The possibility of a 2023 market rally ground to a halt last week amid an onslaught of unfortunate inflation and economic data that spooked investors and increased the likelihood that the Federal Reserve will continue its economically painful rate hikes campaign for longer than Wall Street hoped.

Photo Insert: The inflationary crab walk is causing Fed officials to rethink their policy.

All major indexes notched their largest weekly losses of 2023 on Friday. The S&P 500 fell by 2.7%. The Dow Jones Industrial Average sank 3%, and the tech-heavy Nasdaq fell 3.3%, Nicole Goodkind reported for CNN Business.

After months of steady decline, the pace of inflation is going sideways. January’s Personal Consumption Expenditures (PCE) price index – the Fed’s favored inflation gauge – came in hotter than expected on Friday.

Prices rose a whopping 5.4% in January from a year earlier, the Commerce Department’s Bureau of Economic Analysis reported.

In December, prices rose 5.3% annually. In January alone, prices were up 0.6% from the prior month, a higher monthly gain from December’s increase of 0.2%.

This inflationary crab walk is causing Fed officials to rethink their policy. A paper presented Friday at the Booth School of Business Monetary Policy Forum in New York argued that disinflation will be slower and more painful than markets anticipate.

“Significant disinflations induced by monetary policy tightening are associated with recessions,” said the paper. “An ‘immaculate disinflation’ would be unprecedented.” It refers to the Fed’s 2% inflation goal without any serious economic damage. Cleveland Fed President Loretta Mester and Boston Fed President Susan Collins agreed.

WEEKLY FEATURE : MVP Group Keeps Lights On During Pandemic