Expectations for rate cuts this year are coming down. For e.g., one month ago the market saw at least six rate cuts before the end of the year (possibly seven). I challenged that assumption – thinking three was more likely (not six). Following news of a hotter than expected Producer Price Inflation (PPI) print for January – those expectations are now down to just three cuts before year’s end. That’s more aligned to the Fed’s intended path.

The much awaited January Consumer Price Index (CPI) came in hotter than expected – leading to a small sell off in equities (2%) and a jump in bond yields. The US 10-year pushed 4.30%. But the data should not have been a surprise – there are pockets of strong inflation (eg car insurance up 24% YoY). From mine there are two takeaways: (i) don’t expect the Fed to cut “6 times” this year (as I’ve been saying); and (ii) inflation is not coming down as quickly as many assumed. The good news is the direction for inflation is lower – however the Fed may be forced to hold rates higher for longer. The question then is how will that impact middle-to-lower income earnings – who are already struggling? And what does that do for earnings?