Eyeing the CPI

Federal Reserve Chair Jerome Powell's congressional testimony today confirmed that the Fed remains in a dovish pause mode. The FOMC is in no hurry to lower the federal funds rate (FFR). That's even though many of the committee's participants believe that the FFR remains relatively restrictive. So when they finally move again, it will most likely be to lower rather than to raise the FFR. That's the Fed's current message. Tomorrow's January CPI isn't likely to change it anytime soon.

The possibility that annual price resets might boost monthly consumer inflation is widely known. So a cooler headline CPI—something below 0.3% and closer to 0.2% m/m—could boost stock and bond prices. But that doesn't mean it would change the FOMC's posture, especially with so much uncertainty regarding the eventual impact of tariffs on inflation.