February CPI report reactions: Fed could stage a 'dramatic pivot' next week - analysts

© Reuters.

By Senad Karaahmetovic

Prices rose 0.4% in February and 6% from a year-ago period, in line with economists’ expectations, today’s inflation figures released by BLS showed.

Core CPI came in at 0.5%, slightly hotter than expected (consensus 0.4%) but in line with YoY estimates (5.5%).

Still-hot inflation was supported by shelter, recreation, household furnishings and operations, and airline fares, the report showed. On the other hand, a drop in energy prices, as well as in used cars and trucks helped keep inflation in check.

For Vital Knowledge analysts, the CPI release “isn’t the best-case scenario.” Still, “there are enough dovish pieces that when coupled with what’s happening with banks should give Powell cover to dramatically shift the policy message on 3/22.”

“It’s still hard to say whether they do 0 or 25bp on 3/22 (odds favor 25bp at this point), but regardless the cycle ceiling is just about in place (4.75-5%), and the QT process will likely be at least slowed (if not stopped completely). We do think Powell will push back a bit on the aggressive rate cuts priced into the market, warning investors that data thus far doesn’t justify such a move,” the analysts wrote in a note shortly after the CPI report was released.

Wells Fargo analysts added that “a 25 bps rate hike is still a distinct possibility if financial stresses ease.”

The markets are trading sharply higher with the S&P 500 up 1.6% on the day while Nasdaq leads the way again (+1.9%).