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the avalanche of surprises that left the economy in January and a wait that lengthens

February 18, 2024 – 18:34

It wasn’t just the inflation data that was surprising. Are we dealing with a more robust economy and also more pungent inflation? There are three rate cuts in the draft for 2024, but there is no rush to get started.


The gentle inflation that January promised did not come true. It was known about the decrease in gasoline values ​​at the pump (they fell 3.3%). Did not reach. Consumer prices rose 0.3%; the core basket, 0.4%; and services (without energy), 0.7%. Those who distrust the success of the war against inflation have hard data to hold on to. Believers, like the FED itself, preserve a rosary of accumulated evidence, but they still take something with them. A reminder that the road to the 2% goal can be arduous and rocky.

Jerome PowellHe, the head of the FED, was with legislators the next day. According to those same sources, he noted that the figures do not represent anything new under the sun. At the end of the month, in any case, it will cross them with the consumption deflator, the yardstick that the institution prefers. Weeks ago, the yellow light that turned on the December retail measurement went out (which was later erased with the annual review of the entire series).

Nevertheless, This time, all the rivers sound and bring surprises. Wholesale inflation also rose 0.3%. Import and export prices, 0.8%, both. They are very different dynamics. Interannual consumer inflation stands at 3.1% (and core inflation at 3.9%). Wholesale inflation is 0.9% and that of import and export prices is negative (-1.3% and -2.4%, respectively). What then made them suddenly accelerate again together?

The surprises that January brought for the US economy

January is a box of surprises. Nobody imagined, to begin with, the exuberant creation of 335 thousand net jobs (barely half). Are we dealing with a more robust economy and also more pungent inflation? The PMI reports, which go into February, confirm the first, and deny the second. They assert that inflation eases pari passu. But not even the compact vision of the real economy resists the sinuous passage of the indicators. Retail sales sank much more than the severity of the weather conditions suggested. It’s another resounding surprise. And the other way around. A drop of 0.2% was expected. It turned out to be four times deeper. The most striking thing is that distance sales also fell 0.8%. And that icy cold cannot be attributed to winter.

The FED is data dependent. How will you respond to a festival of surprises that points in all directions? What will it do, in particular, in the face of the sharp rise in inflation? Powell already warned. There are three rate cuts in the draft for 2024, but there is no rush to get started. Maybe rates should be raised? Austan Goolsbee, of the Chicago FED, answered bluntly: inflation “it can go up a little and stay on the 2% path”. They are his words, “it is totally clear that she is going down.” It would be a mistake to overreact to a specific number, say common sense and the Secretary of the Treasury, Janet Yellen, who knew how to manage the FED. But it is not a single piece of information, it is an avalanche. However, one should be suspicious of the very strong seasonality of January and the difficulty in purifying the figures. If the raw data are taken – without seasonally adjusted – the decline in inflation, for example, is a trend that is not in question. And the vigor of the employment seems genuine although the verification is paradoxical. January destroyed 2.6 million net jobs. They are about 200 thousand less than usual in the first month of each year on average.

What the FED is expected to do with rates

What will the FED do? Watch and wait. Her period since July. It is clear: you will not start pruning if you are suspicious of the information. The more confusing the date, the longer the vigil will prolong. Even with arms crossed and mouth closed, monetary policy is restrictive. And the bond market has already taken action on the matter. Long rates have risen 40 basis points since the beginning of the year and serve as containment. Before the FED changes its rates, the ten-year rate must sink below 4%. Wall Street has no complaints. The Stock Market acknowledged receipt of the bad inflation number, endured a bitter day, and three later, closed its fifth consecutive week on the rise. And he did it with a brand new record. What’s more, even the punished Russell 2000 put his chest to the bullets. Far, still very far from the highs and the fervor of investors, it withstood the shower of long rates and soapy data. It collapsed 4% on Tuesday but recovered everything and managed to take another step forward (+1.13%) in the final balance of the week.

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