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In January, US inflation climbed unexpectedly to 3%, a development that strengthens the argument for the Federal Reserve to take a cautious approach with interest rate reductions. This news caused a ripple effect, impacting both stock markets and government bonds.
Economists surveyed by Reuters anticipated that inflation would remain consistent with December’s figure of 2.9%. However, the Bureau of Labor Statistics reported a higher-than-expected month-on-month increase of 0.5%, exceeding the predicted rise of 0.3%.
In the wake of these statistics, there was a notable sell-off in both government bonds and futures tied to stock indexes. Specifically, the yield on the two-year Treasury note, which is sensitive to interest rate predictions, surged by 0.09 percentage points, reaching 4.37%. It’s important to remember that bond yields increase as their prices decrease.
Additionally, futures connected to the S&P 500 experienced a 1% drop, and those linked to the tech-focused Nasdaq 100 dipped by 1.1%.
This significant data release follows a week after the Federal Reserve chose to disregard President Donald Trump’s suggestions to slash borrowing rates drastically. Instead, the central bank opted to maintain its primary interest rate within the 4.25% to 4.5% range.
On Tuesday, Federal Reserve Chairman Jay Powell affirmed the bank’s commitment to its responsibilities, emphasizing that they “will continue doing our job and stay out of politics.”
Please stay tuned as this story develops.
