Bank of America: Strong CPI underscores Fed’s caution, rate hikes back in discussion

Bank of America analysts say the latest Consumer Price Index (CPI) report delivered another upside surprise, reinforcing the case for the Federal Reserve to keep rates on hold.

The headline CPI rose 0.5% in January (0.467% unrounded), pushing the annual rate to 3.0%, while core CPI—which strips out food and energy—increased 0.4% (0.446% unrounded), bringing the year-over-year figure to 3.3%.

“The bottom line is clear: the Fed has no reason to cut further,” the analysts wrote, noting that inflation remains stuck above the central bank’s 2% target and the unemployment rate nearly dipped into the 3% range in January.

While they still see the threshold for additional rate hikes as high, Bank of America argues that tightening should now be back in the conversation following the stronger-than-expected inflation data.

Put the knife down Jay, you won’t be needing it where you are going ….

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The data can be found from here:

• Forexlive Americas FX news wrap 12 Feb: Higher US CPI pushes yields higher. USD is mixed

Earlier responses posted:

• Morgan Stanley hasn’t changed its Federal Reserve forecast despite strong US CPI report
• Goldman Sachs revises core PCE inflation forecast higher after CPI report

This article was written by Eamonn Sheridan at www.forexlive.com.