Stock futures trade flat after January inflation shows 6.4% annual increase

Hey, Nitta, let's talk this through a little bit. I think Joe nailed it when he said, this situation where the market looks at it and says no news is good news, basically. I'm not so sure of that. I think given that we started this journey now almost a year ago, I would have expected that we'd be further along. I mean, it is good news that inflation is not going up, but it's also not really coming down very much. What worries me still is the labor market. We've seen no signs at all that the labor market has slowed down.

We had a very strong jobs report last month, and I still worry that we're not getting a good handle on that. Meaning you think that the Fed is going to continue to act even if we don't see higher inflation because the strong labor market is going to force their hand. They will assume that inflation will come roaring back. Well, to me, this report confirms that the Fed needs to be aggressive. I don't know. I mean, I think they've been sending somewhat mixed signals over the last months, but I think that that's premature. We still have a ways to go before we have comfort that we have a handle on inflation.

What I worry very much about is that we think that we're coming down, we slow down, and then towards the end of this year, inflation comes back up again, which makes it even harder down the road. Mr. Furman, do you agree with that assessment? I think the markets are just ridiculously complacent about the inflation situation right now. I look at tips, I look at swaps. They have break-evens of inflation of around 2%. I just don't see that. I don't see how we have inflation much below 3% this year.

I don't see it coming down below that without a decent-sized recession, and nothing in this numbers gives me comfort. Yeah, it's not a surprise relative to the expectations we had yesterday, but compared to the narrative we had a month ago where we thought inflation was coming down, where we thought it was jumping off from a low point, we now have core this month at an annualized rate just for the month of January of 5.1%. Even if you take out shelter, which is lagged, and the used cars, the so-called super core, you're at an annual rate of 4.3% for this month. That's faster than the pace in the last two months. That is with some special things that we're helping.

Used cars, we got more relief there than we were expecting to. Medical services also fell. Those aren't things you can count on continuing to happen. So I think this inflation issue is real. I don't think it's going away anytime soon. And I think anyone who's overly calm about it is making me nervous. OK, so, Jason, how do you explain what we heard from Jay Powell last time? Because I think it was the use of disinflationary measures or disinflationary forces so many times that made the market think, OK, the Fed is starting to calm down on this.

Did we misinterpret his words or does he, you don't think, feel the same way you do? I don't know. I mean, he also says that he doesn't expect inflation to come down without the labor market loosening some and that the labor market hasn't loosened some. He says we haven't made much progress in the core services ex-shelter. So I think his words have not been fully consistent in this regard, but he often says, I think the right thing and people aren't listening. And financial conditions have eased a lot. I think the Fed is going to need to do something about those financial conditions, whether it can do it with words and dots and things like that at the next meeting is one possibility. But it might need to do a 50 basis point hike to really get the market's attention and put in place the economic conditions that really could start to bring down this inflation that remains very, very high.

Rick, your reaction, what do you think would happen to the markets if there was suddenly a 50 basis point hike at the next meeting to try and grab our attention? The yield curve would dramatically invert even more because the Fed, most likely on the back side of this is going to have gone too far. Listen, we have a lot of smart people on this panel, but I'd rather look at the market and take the assimilation and accommodation of current numbers, seven in a row in terms of headline year over year drops in inflation sequentially, four in a row for year over year core. That is the concrete, tangible, and hold it in my hand even though seasonal adjustments and a lot of issues may make the numbers slippery, numbers have always been slippery. This is what traders have to work with, and they are working with it. If you look at the Dow futures high of the session today, the high of the session from an intraday basis was the high set contract traded for all of 2023. And I'm sorry, if I'm going to make a bet on the back half or end of this year as to what position I want in the marketplace, I don't know that I would put all of my chips on economists and the soothsayers of the future. I think I'll go with the markets.

They will continually update as information becomes available. But Rick, can we talk about that sequential decline in inflation? There's no money left. People trade to make money. Rick, can we talk about that sequential decline in inflation? Yeah, Jason, make your point and then we'll go to Steve. Yeah, look, we had an inflation rate of 9%. It's come down to 6.4.

6.4 is incredibly high. No one ever thought that 9% was going to last.

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