Stronger financial data over the past few months has led investors to nurture hopes of a soft economic landing as they expected inflation to drop to the US Federal Reserve’s 2% benchmark. However, the latest Consumer Price Index (CPI) report, released by the US Bureau of Labor Statistics, cooled this optimism as it reflected a 0.3% inflation increase for All Urban Consumers (CPI-U).
Hopes of an economic ‘soft landing’ evaporating
This higher-than-expected rise in inflation and the concurrent drop of sales during January 2024 showed no improvement in inflation or consumer strength. According to Yahoo Finance, Austan Goolsbee, the Chicago Federal Reserve president, advocated against unnecessary scepticism and said that one month’s CPI report will likely not rock the cradle and that inflation is clearly falling.
Others, however, feel that this information decidedly challenges the ‘soft landing’ predictions. In a Yahoo Finance Live interview, Liz Young, the head of investment at SoFi, said:
The data is stacking up against investors in a way that’s making people more nervous.
Despite positive Q4 reports beating poorer forecasts, December 2023 retail sales and wage increases, economists began the week by downsizing their projections for the Q1 gross domestic product (GDP). Goldman Sachs deflated its forecast from 2.9% to 2.3%, and the Atlanta Federal GDP tracker dipped from 3.4% to 2.9%.
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In a note to clients on Friday, 16 February 2024, Stephen Juneau and Michael Gapen, economists from the Bank of America, wrote:
While January data are often noisy, the inflation data do suggest that disinflation took two steps back in January.
