INSTANT VIEW-Hot September CPI sends rate-hike bets soaring
NEW YORK, Oct 14 (Reuters) -
US consumer prices accelerated in September with a surge in gasoline costs putting an interest rate increase later this month back on the radar.
The Consumer Price Index rose 0.6% last month after climbing 0.4% in August, the Labor Department's Bureau of Labor Statistics said on Wednesday. In the 12 months through September, the CPI advanced 3.7% after rising 3.4% in August.
Economists polled by Reuters had forecast the CPI would gain 0.6% over the month and increase 3.6% on a year-over-year basis. Gasoline prices soared 7.1% in September, data from the US Energy Information Administration showed.
Excluding the volatile food and energy components, the CPI gained 0.3% in September, matching the gain in August. In the 12 months through September, core CPI inflation increased 2.6% after advancing 2.4% in August. The US central bank tracks the Personal Consumption Expenditures Price Index for its 2% inflation target. The core CPI measure is lagging core PCE inflation, which increased 3.0% in August, because of the different weights assigned to the components in the baskets.
MARKET REACTION:
STOCKS: U.S. stocks were headed lower, with futures on the Nasdaq .IXIC down 0.6% and futures on the S&P 500 .SPX off 0.4%.
BONDS: Yields rose sharply as investor expectations of a rate hike jumped. U.S. two-year yields, which are sensitive to the outlook for interest rate moves, rose 15.7 basis points to 4.95% <US2YT=RR>. The benchmark 10-year yield
FOREX: The U.S. dollar index was up 0.55% to 102.75, an 18-month high.
RATE BETS: Futures that settle to the Fed's policy rate are pricing about a 49% chance that the central bank will keep the policy rate in its current 3.75%-4% range at its meeting in two weeks, up from 19% before the report.
COMMENTS:
JEFFREY ROACH, CHIEF ECONOMIST FOR LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA:
"Inflation pressures are broadening beyond energy, suggesting the last mile back to target could remain bumpy and keep interest rates elevated. The latest report complicates the Fed’s decision this month, as the road back to price stability is looking increasingly difficult to navigate."
ADAM SARHAN, CHIEF EXECUTIVE, 50 PARK INVESTMENTS, NEW YORK:
"The (stock) market is selling off. Investors are not happy with the report because that puts pressure on the Fed to raise rates to combat inflation. Right now inflation remains public enemy number one for the market and for the Fed. Tech stocks are selling off, and we're going to see some pressure on small caps, mid-caps, interest-rate sensitive areas of the market...The real question now becomes will there be relief on the inflation front... Right now, energy prices are going up, not down. The market is looking for some relief."
PETER ANDERSEN, FOUNDER, ANDERSEN CAPITAL MANAGEMENT, BOSTON:
“The CPI reading is hotter than expected, but I don’t think it’s enough to fuel another interest-rate hike. There is developing anecdotal data suggesting consumer confidence is weakening and consumers are not enjoying as favorable an environment as before. Those factors need to be added to the overall picture of how the consumer is doing"
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, CFRA RESEARCH, NEW YORK:
"It certainly does increase the odds of the Fed raising rates at the October meeting but I still believe that they're not going to raise rates because we have never had two rate hikes within two months of midterm election years.
"I would tend to say that because inflation does not appear as if it's running away and the Fed has already indicated that it is going to take a more of a hawkish approach to inflation. It certainly increases the likelihood of a rate hike in December."
GEORGE BROWN, SENIOR ECONOMIST AT SCHRODERS, LONDON:
“While energy prices might be grabbing the headlines, today's report suggests the inflation problem runs much deeper. A stronger-than-expected core inflation reading adds to mounting evidence that domestic price pressures are becoming more entrenched, rather than easing.
"Markets are right to assume that policy will need to become much more restrictive to return inflation to target. The question is whether the Fed is prepared to tighten as much as the inflation outlook demands."
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:
“The inflation news this morning is not comforting by any means, It shows that inflation did accelerate from the previous month and remains a problem for the Fed. That said, although they might not raise interest rates this month, there’s a good possibility that the Fed may have to increase by 50 basis points in December.
“Why am I saying that? Because oil prices remain stubbornly high and they are continuing to move higher. President Trump’s announcement of a deal with Russia is certainly not going to bring diesel prices down by very much. And there’s the possibility that if this war continues, WTI could go back into the triple digits.”
ANSHUL SHARMA, CHIEF INVESTMENT OFFICER, SAVVY WEALTH, NEW YORK:
“Inflation rose to 3.7% in September, up from 3.4% in August. We believe the important piece here is that underlying price pressures are broadening beyond energy. Gas prices drove more than half of the monthly jump, but core inflation rose 0.3% for a second straight month and is now running at 2.6% over the year, above expectations.
"Shelter picked up to 0.4%, airfares keep climbing as fuel costs get passed through, and goods prices firmed too. We think that puts an October rate hike back on the table, and investors should be prepared for more volatility in bonds and rate-sensitive stocks until the Fed’s October 28 decision. For long-term investors, staying diversified matters more than reacting to any single data point.”