Fed Inflation Controls Fall Short In PPI Numbers

Fed plans to curtail inflation aren’t showing up in the data as wholesale prices for producers rose again in September.

The rise in costs follows four Fed hikes in benchmark interest rates prior to the latest data set, including the largest rate hike in decades at .75% (the Fed additionally raised rates by another .75% in late September).

According to the U.S. Bureau of Labor Statistics, Producer Price Index (PPI) costs – less food, energy, and trade services – rose .4% in September, the largest rise since increasing .5% in May. For the 12 months ended in September, the bureau stated, these core index prices moved up 5.6 percent.

Leading up to the PPI numbers before the opening bell today the stock market was on edge – the S&P 500 was down five days in a row before the release.

But the bellwether report didn’t phase the stock market at the open today.

Bellwether Producer Price Index report falls flat

The three major stock market indexes all opened higher Wednesday despite a negative PPI report.

Many in the financial world expected any negative report to send the market reeling. The market had other intentions as it opened just above flat and remained positive across the board into midday trading.

As the stock market battled through the PPI numbers, the underlying question concerns how the Fed will react. The Fed watches core inflation – prices less food, energy, and trade services – as the measure for how aggressively it continues raising benchmark interest rates.

To date the Fed is holding fast in its aggressive resolve to lower core inflation down to 2% annually. The latest PPI numbers show core inflation at almost triple the Fed acceptable level).

John Carter, Founder of Simpler Trading, is watching to see if the Fed continues to stay aggressive if the upcoming Consumer Price Index (CPI) report mirrors sustained inflation revealed in the PPI data.

“Will the Fed continue to stay aggressive with tightening (raising interest rates) until they run this economy into the ground, or is there going to be a silver lining in any one of these numbers that would allow the Fed to just get a touch less aggressive?” John asked. “That’s what the market is waiting for at this point.”

In this uncertain environment, John continues to day trade the stock market to avoid risk from extended swing trades.

“No reason to have overnight risk in this environment,” John said.

The next highly anticipated economic data report is the CPI releases slated for tomorrow morning before the opening bell. That will be followed by the release of the September Federal Open Market Committee (FOMC) meeting minutes later in the day and then University of Michigan Consumer Sentiment Index numbers on Friday.

How these various releases might influence Fed decisions remains to be seen. The next FOMC meeting is slated for Nov. 2.