ETFs Seesaw After Disappointing CPI Report

ETFs Seesaw After Disappointing CPI Report

The Federal Reserve may announce more rate hikes than expected.

Reviewed by: Shubham Saharan
Edited by: Shubham Saharan

Moderating inflation may not be enough to keep the Federal Reserve from continuing rate hikes, as the latest consumer pricing index released Tuesday showed prices stayed elevated last month.  

Data from the U.S. Bureau of Labor Statistics showed consumer prices rose 6.4% in January compared with a year ago. Overall CPI inched up 0.5% from the prior month, fueled by rising gasoline and shelter pricing.  

Stock ETFs largely pared earlier losses.

“This inflation print served as a reminder to investors that the path to lower inflation is not as clear cut as previously thought, and it is too early for the Fed to declare victory on inflation,” Gargi Chaudhuri, head of iShares investment strategy in the Americas, said in a note. “While the economy has experienced meaningful cooling in prices recently, the tight labor market and continued growth in wages also remind us that many pockets of the economy are still strong.” 

Excluding food and energy, the core CPI, which strips out more the volatile food and energy data, advanced 0.4% last month and was up 5.6% from a year earlier. Shelter costs, which are the biggest services component and make up about a third of the overall CPI index, rose 0.7% last month.  

Energy prices rose for the first time in three months. 

“Goods disinflation continues, though the pace has been less rapid than we anticipated and may fade going forward as goods prices such as those for automobiles normalize,” Vanguard Senior Economist Andrew Patterson wrote in a note. “Service price growth remains elevated, though less so when accounting for the likely fall in shelter prices coming in the latter part of the year.” 

Both the SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust (QQQ) rose and fell several times during the trading day, following their underlying indices, as investors parsed the data for a sense of the Federal Reserve’s path forward as it battles inflation. At day's end, SPY closed little changed, while QQQ rose 0.1%.  

According to Federal Reserve Bank of Richmond President Thomas Barkin, the central bank may look to increase its terminal rate if inflation does not show signs of easing.  

“Inflation is normalizing, but it’s coming down slowly,” Barkin said in a Tuesday interview on Bloomberg TV. “We may or may not choose to take rates up further if inflation continues to persist, but we’ll have to see what happens.” 

On Feb. 1, the Fed posted a 25 basis point increase to its federal funds rate, bringing it to a range of 4.5% to 4.75%. Officials noted that additional increases would be warranted and reiterated their commitment to bringing inflation down to 2%.  


Contact Shubham Saharan at[email protected]        

Shubham Saharan is a markets reporter at Before joining the company, she reported for Bloomberg and the Financial Times. Saharan is a graduate of Barnard College of Columbia University.