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Atlanta Fed President Raphael Bostic signaled uncertainty over the timing of rate cuts, citing ongoing concerns about inflation and policy shifts under the Trump administration. Speaking at an event overnight, Bostic emphasized the need for "more clarity" before making any definitive moves on monetary policy.

He acknowledged the difficulty in assessing the current economic conditions, stating, “My view is until we have more clarity, it’s going to be impossible to make a judgment about where our policy should go and how fast and at what pace, and so we’re just going to have to get more information before we’re going to be able to move.”

He also provided his estimate for the neutral rate, which he sees in a range of 3%-3.5%. Currently, Fed's target range stands significantly higher at 4.25%-4.5%. Bostic's initial projection was to see rates move about halfway to neutral by year-end. but the timeline remains highly contingent on economic developments and inflation trends.

Fed Chair Jerome Powell acknowledged that the latest inflation data released yesterday confirms the US is making progress but is still “not there on inflation.”

Following January’s stronger-than-expected CPI report, Powell said in the Congressional testimony that Fed will "keep policy restrictive for now" to bring price pressures down.

Powell also underlined that the "economy is strong, the labor market is solid" allowing the Fed to keep a tight policy stance and wait for inflation to ease further.

He also emphasized that one month of higher readings should not be interpreted as a complete reversal of the disinflation trend, especially given that Fed’s preferred inflation measure, the Personal Consumption Expenditures index, typically runs below CPI.

• The Dow Jones initially fell following a US inflation report but recovered somewhat.
• US consumer prices saw their biggest jump in over a year, supporting the Federal Reserve’s stance on interest rates.
• Fed Chair Powell cautioned against reading too much into the inflation data, citing the PCE inflation gauge as the preferred measure.
• Uncertainty remains in the markets regarding how tariffs will impact global growth and inflation.

The Dow Jones fell around 400 points on Wednesday following a hot US inflation report. However, the Dow has since recovered around 300 points to trade 0.45% down for the day at the time of writing.

DJIA Heatmap at the time of writing

Source: TradingView

US CPI Shock – A Cautionary Tale?

Consumer prices in the U.S. saw their biggest jump in almost a year and a half this January. This supports the Federal Reserve’s stance and something that Fed Chair Powell mentioned on Wednesday. The Fed Chair remained steadfast in his assessment that the central bank isn’t ready to lower interest rates yet, especially with uncertainty surrounding the economy.

Source: LSEG

Fed Chair Powell began his second day of testimony before Congress with inflation and rate cuts remaining key. Fed Chair Powell did however mention that he would caution against reading too much into today’s inflation data, reminding everyone of the Fed’s preferred inflation gauge, the PCE data.

Some other key quotes from Fed chair Powell below:

• WE WANT TO SEE MORE PROGRESS ON INFLATION
• DIDNT SEE MUCH PROGRESS ON CORE INFLATION LAST YEAR
• WE HAVE THE LUXURY OF BEING ABLE TO WAIT FOR THAT, GIVEN STRONG ECONOMY
• LAST FEW JOB REPORTS HAVE SHOWN SIGNIFICANT JOB CREATION, MAY HAVE TICKED UP AT END OF YEAR
• OFFER A NOTE OF CAUTION ON TODAY’S CPI READING; WE TARGET PCE INFLATION WHICH IS A BETTER MEASURE
• WE’LL KNOW WHAT PCE READINGS ARE LATE TOMORROW, AFTER PPI DATA

Despite Fed Chair Powell’s comments I do not think that this report should be taken lightly. ANy future inflation readings will likely feel some strain from tariffs, which could push inflation even higher.

According to reports, President Trump’s trade advisors are preparing reciprocal tariffs on every country that charges duties on US imports.

When looking at a sector breakdown, the only sector up at the time of writing was consumer non-cyclicals with basic materials down the most.

Dow Jones Sector Performance

Source: LSEG

Apple reversed higher post CPI to trade in the green for the day, but fellow magnificent 7 stocks continued to toil with NVIDIA and Amazon still in the red for the day.

Despite the CPI print markets remain cautious as there is still a lot of uncertainty in regard to how tariffs will impact both global growth and inflation.

Technical Analysis

Dow Jones

From a technical standpoint, the Dow Jones has recovered quite well post the CPI release.

The index is trading at the support level 44450 having bounced out of a key confluence area earlier in the day.

The overall trend on the daily is a mixed one with a lower high finding no follow through to print a lower low. These conditions are being seen in a few different asset classes and a sign of the uncertainty prevalent in markets.

Immediate resistance rests at 44759 and 45097, with immediate support at 44200 and 43800.

Dow Jones (US30) Daily Chart, February 12, 2025

Source: TradingView (click to enlarge) 

Support

• 44200
• 43800
• 43400

Resistance

• 44759
• 45097
• 45500

• Bitcoin reversed from the support area
• Likely to rise to resistance level 100,000.00

Bitcoin cryptocurrency recently reversed up from the support area between support levels 93775.00 and 90000.00. This support area has stopped the previous corrections 4, A, C and 2, as can be seen below.

This support area was further strengthened by the lower daily Bollinger Band and by the 38.2% Fibonacci correction of the upward price impulse from November.

Given the clear daily uptrend, Bitcoin cryptocurrency can be expected to rise to the next round resistance level 100,000.00.

• CHFJPY reversed from the support area
• Likely to rise to the resistance level 170.00

CHFJPY currency pair recently reversed up from the support area located between the multi-month support level 166.70 (which has been reversing the price from last March) and the lower daily Bollinger Band.

The upward reversal from this support area created the daily Japanese candlesticks reversal pattern Piercing Line.

Given the strength of the support level 166.70 and the oversold daily Stochastic, CHFJPY currency pair can be expected to rise to the next resistance level 170.00 (former support from last month).

• DAX index broke resistance level 22000.00
•  Likely to rise to resistance level 22500.00

DAX index is under the bullish pressure afar the earlier breakout of the daily up channel from August and the resistance level 22000.00

The breakout of the resistance level 22000.00 greatly accelerated the active impulse wave 3, which belongs to the intermediate impulse wave (3) from November.

Given the clear daily uptrend and the accelerating upward channel inside which the price is moving now, DAX index can be expected to rise to the next resistance level 22500.00 (target price for the completion of the active impulse wave 3).

• Nikkei 225 index reversed support level 38000.00
• Likely to rise to resistance level 40285.00

Nikkei 225 index recently reversed up from the support level 38000.00, which is the lower border of the narrow sideways price range inside which the index has been moving from last October. This support area was strengthened by the lower daily Bollinger Band

The upward reversal from this support area created the daily Japanese candlesticks reversal pattern Piercing Line.

Given the clear daily uptrend, Nikkei 225 index can be expected to rise to the next resistance level 40285.00 (the upper border of this price range).

Summary

Expectations of seeing further modest improvement in inflation at the start of this year were dashed by the January Consumer Price Index. The headline CPI rose 0.5% last month, well ahead of consensus expectations for a 0.3% increase. The upside surprise to the core index was more modest (0.4% versus expectations for a 0.3% increase), but illustrated broad-based strength in pricing at the start of the year. Core goods prices rose 0.3% and are now little changed over the past year as the deflationary tailwinds of improving supply chains have petered out. Core services prices rose 0.5% amid a 0.4% rise in shelter costs and strength in non-housing services like transportation and recreation.

The upside surprise is reminiscent of last January's CPI report and suggests even the updated seasonal factors released in today's report are still struggling to capture early year price increases after the pandemic-period scrambled the typical calendar year pattern of price changes. That said, both the year-over-year rates of the headline and core CPI indices rose over the month. Therefore, setting aside any issues over residual seasonality, today's report offers more evidence of progress in lowering inflation stalling out.

January Déjà Vu

The stubborn picture of inflation continued in January with the Consumer Price Index coming in hotter than expected. Prices rose 0.5% at the start of the year, compared to consensus expectations of a 0.3% gain. On a year-over-year basis, prices rose 3.0%—the strongest 12-month change since June (chart).

Part of the headline's strength can be tied to a surprisingly large lift in energy prices (chart). Energy goods prices rose 1.9% amid strength in gasoline prices and fuel oil, overshadowing a more temperate rise in energy services. Meantime, the upswing in food inflation continued in January (chart). Grocery prices rose 0.5% amid another leap in egg prices (+15.2%) and are up 1.9% over the past year. Prices for food away from home rose a more modest 0.2% but continue to see more firm growth on trend having advanced 3.4% over the past year.

Excluding food and energy, price growth also beat expectations with a 0.4% gain in January. Gains were broad-based among major components. Core goods prices were up 0.3% over the month and roughly flat over the past year as the disinflationary tailwinds from improved supply chains have run their course (chart). Much of the pickup can be traced to a jump in used vehicle prices (+2.2%), motor vehicle parts (+0.8%) and medical care commodities (+1.2%), whereas apparel posted a notable decline in prices (-1.4%).

On the services side, core prices rose 0.5%. The closely-watched shelter component rose 0.4% over the month, with both rent of primary residences and owners' equivalent rents rising 0.3%, in line with their six-month averages. Lodging away from home, however, helped lift the shelter component with a +1.4% rise over the month, which we see as partially tied to the L.A. wildfires given higher-than-usual occupancy in the area during the month. Beyond shelter, outsized gains in motor vehicle insurance (+2.0%), airline fares (+1.2) and recreation services helped drive core services higher.

January's unexpected strength echoes the pop in prices registered at the start of 2024 and renews questions over residual seasonality (i.e., the inability of seasonal factors to fully capture regular calendar patterns) in the data. However, looking at the year-over-year data to remove issues around seasonality also points to inflation's ongoing strength. The 12-month pace of core CPI picked up to 3.3% in January, keeping it within the 3.2%-3.3% range it has resided in since June (chart). We expect the 12-month rate of core inflation to remain stuck near this level in the coming months, with the core index rising at a loftier 3.8% annualized pace over the past three months.

FOMC officials have made clear that they are in no hurry to adjust the current stance of monetary policy. With inflation still running above the FOMC's target, the labor market looking sturdier after last summer's wobble and heightened uncertainty around economic policy changes, we believe the Committee has settled into a prolonged hold. We have not changed our expectations for two 25 bps rate cuts in September and December of this year, but we believe the risks are skewed toward no cuts this year if the inflation data do not cool further in the months ahead.

Markets

Today’s trading session was a long-drawn countdown to the US January inflation data. If anything, the drift in EMU yields still was cautiously north. ECB board member Elderson joined recent comments that data are more important to guide short-term policy decision rather than an assessment on the concept of the natural rate for policy. German yields added up 3.0 bps (2-y). US yields returned small gains just before the CPI release as President Trump on social media advocated the need to lower rates. However, his call for sure won’t fit the Fed assessment post today’s US inflation data. Headline CPI inflation rose an outsized 0.5% M/M (highest since August…2023!!) to raise the Y/Y figure back to 3.0% (from 2.9%). Core inflation also jumped from 0.2% M/M and 3.2% in December to 0.4% M/M and 3.3% (vs 3.1% expected). Food (0.4% M/M and 2.5% Y/Y) and energy prices (1.1% M/M) supported the rise in prices but also services inflation (ex-energy) remains elevated at 0.5% M/M and 4.3% Y/Y. Shelter prices don’t show much of a downward dynamic at 0.4% M/M and 4.4% Y/Y. The super-core inflation (core services less housing as calculated by Bloomberg) at 0.76% M/M doesn’t give comfort. The market reaction was straightforward. US yields currently add between 10 bps (5 & 10-y) and 6-8 bps (2-y and 30-y) the belly thus underperforming the wings. Markets now only discount one single 25 bps cut by the end of the year. Interesting to hear first comments from Fed Chair Powell later today as he testifies before the House Financial Services Committee. The context for today’s $42 bln US Treasury 10-y Note sale also profoundly changed. German yields gained in sympathy, albeit modestly, between 5 bps (2-y) and bps (30-y). The bond market sell-off also pressured US equities with losses of about 1.0% for the three major US indices. Damage for the EuroStoxx 50 (-0.2%) stays limited.

On FX markets, dollar gains again were not exuberant given the sharp rise in yields and the congruent (mainly US) risk-off. DXY gains from about 108 to currently 108.35. The yen clearly underperforms. USD/JPY already rise to from 152.5 to 153.5 before the release to currently extends to 154.2. On the other hand, the euro showed strong resilience with EUR/USD ‘easily’ holding north of 1.03. (1.034 currently). Is some kind of US risk premium building? Recent strength in the likes of the NOK and the SEK (against the euro) is partially reversed. CE currencies (zloty, forint) show negligible losses (against the euro). The Czech koruna even strengthens (EURCZK 25.06).

News & Views

Indian inflation eased a tad more than expected last month. The yearly print fell from 5.22% to 4.31% compared to the 4.5% estimate. Monthly prices fell 1%, driven by a steep 2.9% m/m decline in food prices. Prices of other components including clothing & footwear, housing and fuel & light rose insufficiently to offset the drag of food. The numbers are welcome news to the Reserve Bank of India (RBI) which last week pivoted towards a first 25 bps rate cut after having kept rates steady for two years. Future decisions would be “based on a fresh assessment of the economic outlook”, it said in the accompanying statement. With CPI closing in on the RBI’s 4% target (+/- 2 ppts), the case for additional rate cuts from the current 6.5% as soon as April 9 is strengthening. The RBI needs to thread carefully though, having the Indian currency in mind. While the rupee appreciated since the start of the week from USD/INR <88 to around 86.88 today, it remains historically weak. USD/INR has also yet to react to the Indian CPI outcome as well as the larger-than-expected US reading of today.

OPEC in its monthly report kept forecasts for global oil demand growth unchanged for both 2025 and 2026. Demand this year would rise by 1.45 mln barrels a day and by 1.43 mln in 2026. OPEC said air and road travel would support consumption. While the Trump administration added more uncertainty into the markets, OPEC did not take into account the impact of any potential trade tariffs, saying “It remains to be seen how and to what extent potential tariffs and other policy measures will play out." OPEC holds a more optimistic view on oil demand growth compared to peers. The IEA, for example, sees demand growth at 1.05 mln this year. Oil prices trade a tad lower today around $76/b.