Wall Street initially seemed concerned after two recent inflation reports, but major market averages have bucked the trend. The S&P 500 and Nasdaq Composite rose 1.5% and 2.2%, respectively, this week, marking their first weekly gains in three weeks. The Dow Jones Industrial Average also saw a 0.9% increase.
However, upon closer inspection, the reports may not be as alarming as initially thought. According to Morgan Stanley chief economist Michael Gapen, the translation of the Consumer Price Index (CPI) and Producer Price Index (PPI) into Personal Consumption Expenditures (PCE) inflation is favorable. The core PCE inflation rate should decrease later this month.
Gapen noted that components such as airline fares and physician care services declined in January. He believes that a slower core PCE inflation would make it difficult for the Federal Reserve to shift its guidance towards increasing interest rates. Instead, a potential delay in reducing rates might be more likely.
Barclays strategist Emmanuel Cau warned against dismissing the recent reports, stating that higher CPI may indicate persistent inflation and a potential need for higher interest rates. However, another market development provided a positive note: Baird upgraded Airbnb to outperform, citing the company’s strong fourth-quarter report and plans to expand into adjacent markets and new verticals.
Source: https://www.cnbc.com/2025/02/14/why-the-hotter-than-expected-inflation-reports-this-week-werent-that-hot.html