Consumer Prices Slow and What That Means for The Fed

Wall Street's indexes rallied Tuesday morning, led by the Nasdaq, which jumped over 3% after consumer prices rose less than expected and raised hope that the Federal Reserve could slow its pace of rate hikes.

But the fade in the indexes tells a bigger story. The consumer price index (CPI), which measures a wide range of goods and services, increased by 7.1% on an annual basis in November and just 0.1% from the previous month. While the results came in soft compared to what many economists were predicting helping to lift the indexes in early morning trading, selling quickly commenced, which tells us one thing.

Traders and still weary that the Federal reserve doesn't have a handle on inflation and that there are still fears that the Fed's aggressive policy tightening will push the economy into a recession. People see layoffs in every sector and if the Fed overtightens into 2023, it could be devastating for the broader economy.

The Fact is Tuesday's report doesn't change anything and let me tell you why...

While the market is fading, the report has a lot of good news. 90% of what the CPI tracks were down and the shelter component, which is a lagging indicator to actual market rents data is skewing the data to the upside.

Food inflation for the month of November is down by over 50% at 0.5% from 1.2% in May and energy, used cars, and medical care services were actually negative for the month, a good sign that these important markets are getting back to more reasonable levels.

Even though rates are not likely to be cut anytime soon, it looks to be more likely that there could just be a mild recession and markets might not have much more downside.

The PPI data which we also went over last week showed us that inflation is slowing, a good sign that economic data is going in the same direction.

The Money Morning Team went live this morning to share their reactions. Chris Johnson sees tech getting the biggest bid here and Shah Gilani, who has been talking about the Santa Clause rally has not changed course.

Give the video below a listen to see how they are playing the market.

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