Inflation & Markets

Ryan Heshmati

February 16, 2024

The week saw the S&P 500 fall under 5,000 but break back above and hold by the end of the day Friday. That dip below was the result of inflation data. The Consumer Price Index data for January indicated inflation at a 3.1% annualized rate. While that is a deceleration from 3.4%, the figure was above expectations, and the market responded poorly, though it did recover by the end of the week. With so much attention towards the Federal Reserve and many hoping for rate cuts sooner than later, every economic data, especially on inflation, has significance in moving forward.  

Undoubtedly, with a cautious Federal Reserve, the inflation data is not good news for investors hoping for rate cuts. Unsurprisingly, bond prices fell, and thus, yields jumped on the data. Treasury Secretary Janet Yellen downplayed concerns and described the 3.1% figure as only a “tad higher” than expected and criticized the negative reactions to the data as making a “tremendous mistake” in focusing on small fluctuations rather than the larger trend of decelerating inflation. Of course, Yellen, a Democrat and Biden appointee, has an interest in downplaying economic concerns to support the president’s re-election bid this year.


President Biden used the Super Bowl to criticize what he called “shrinkflation,” described as shrinking product sizes while prices are maintained. Biden blamed corporate greed and called on companies “…to put a stop to this.” Biden may be trying to repair his public image with the American people with regard to his ability to handle the economy, as polls, like a recent NBC News one, indicate a twenty-point deficit in voters’ trust in Biden compared with Trump on the economy.

Beyond inflation, the labor market has been incredibly resilient, according to recent data. Even with strong jobs numbers, though, inflation is at the top of many Americans’ concerns. While not as low as hoped for by many,

3.1% inflation is closer to the 2% number the Federal Reserve, under Jerome Powell’s leadership, has indicated as a target. Although, with no rush from the Federal Reserve to begin rate cuts, the inflation data may very well be a setback for rate cut hopefuls. Deceleration is deceleration, however. The future of inflation is unclear, and thus, the timeline for rate cuts also cannot be known. The 3.1% rate, while not as much of a deceleration as some had hoped, certainly serves as a move in the right direction.