All eyes on key US inflation reading due shortly; can you expect Fed to take it easy on rates?

The US is due to release an official monthly reading of consumer inflation in the world's largest economy later on Tuesday. All eyes will be on the US consumer price index report for January, which could determine the course of interest rates in the US and the rest of the world. The February 14 decision on benchmark interest rates in the US comes at a time when the Fed and other major central banks around the globe have the Herculean task of taming red-hot inflation without causing a blow to economic growth amid fears of at least a mild recession. 

The incoming US data comes days after the RBI announced its a hike of 25 basis points in the repo rate — the key interest rate at which it lends money to commercial banks — to 6.5 per cent, as widely expected by economsits. That marked the sixth back-to-back increase in the key lending rate by the Indian central bank in the current cycle of policy tightening. 

US inflation data time

The release of inflation data by the US labour department is due at 1330 GMT on Tuesday (7 pm in India).

What to expect in today's US inflation data

Economists widely expect consumer prices to slow down sequentially as against the reading of 6.5 per cent in December 2022. 

According to a poll of economists by news agency Reuters, US consumer inflation is pegged at around 6.2 per cent in January 2023 — which stands a good 280 basis points below its recent peak around nine per cent (June 2022).

The Fed has already ruled out the possibility of a reversal in the current cycle of rate hikes in 2023, though its Chairman, Jerome Powell, switched to a smaller rate hike of 25 bps this month.

Can you expect the Fed to pause interest rates anytime soon?

According to a Reuters poll of economists, the Fed is expected go for two more 25 basis point hikes, in March and May, in the current cycle of increases.

US funds range history

The US central bank has so far raised the funds range — or the key lending rate of the world's largest economy — by a cumulative 450 bps in eight tranches since March 2022. 

Economists say Fed policymakers will likely study every bit of detail in the incoming US inflation data for basing its decisions on the key US interest rates in the coming months. 

Global markets remain cautiously optimistic about some respite in US consumer prices

Indian equity benchmarks Sensex and Nifty50 finished a strong session on Tuesday one per cent higher each, boosted by gains in financial, IT, oil & gas and FMCG shares, tracking cautious gains across global markets.

European markets began the day in the green, mirroring the trend across much of Asia. The pan-European Stoxx 600 index was up 0.4 per cent at the last count.

S&P 500 futures were up 0.2 per cent, suggesting a mildly positive start ahead on Wall Street. 

What the markets expect from incoming US inflation data

Analysts believe a further cooling off of inflation in the US will likely take away some of the concerns among aggressive hikes in the US interest rates. Many of them are of the view that the markets worldwide have digested the possibility of persistently higher levels of benchmark rates in 2023.

IT stokcs remained in focus on Dalal Street on Tuesday as investors anticipated a slowdown in US inflation, which could result in a favourable Fed policy, according to Vinod Nair, Head of Research at Geojit Financial Services.

Catch latest stock market updates here. For all other news related to business, politics, tech, sports and auto, visit Zeebiz.com.