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Hot CPI Data Strengthens Case for March Rate Hike

U.S. futures opened lower on Wednesday as investors reacted to the unexpected bump in the Consumer Price Index (CPI).

While the major index futures (ES -white, NQ – blue & YM – yellow) made a swift recovery by mid-morning, the sharp decline at the opening bell reiterated that fears of inflation are top of mind once again. The CPI, released by the U.S. Bureau of Labor Statistics, rose .5%, beating economists’ expectations of a .3% gain.

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The unexpected bump in CPI fell on a recent resurgence in volatility. Last week the DOW delivered its largest single day point drop in history followed by a number of turbulent moves.

The fear of inflation is so prevalent among investors because a higher inflation rate will erode a portion of returns gained on their investments. The dovish approach taken by the Fed with Yellen at the helm was an attempt to curtail the Fed’s worst fear…run away inflation. With hotter than expected CPI data, the case for a rate hike in March, with an additional three throughout the year, is strengthened.

Trading during times of heightened volatility can present unique markets conditions and employing proper risk mitigation measures is vital.