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Inflation: 'One data point does not make a trend,' strategist says

·Reporter
·3-min read

U.S. have stocks rallied this week with both the S&P 500 and tech-heavy Nasdaq set to post their longest streak of weekly gains since November, bolstered by Wednesday's inflation data.

But one strategist argues markets aren't out of the woods just yet when it comes to inflation and any subsequent actions from the Federal Reserve.

"I would just simply say that one data point does not make a trend by any means," PNC Asset Management Chief Investment Officer Amanda Agati told Yahoo Finance Live on Friday (video above). "And so the market really took the July CPI [Consumer Price Index] report as claiming victory that the peak is officially in."

Data out Wednesday showed the consumer price index climbed 8.5% from a year earlier in July compared to the 9.1% annual increase seen in June. Economists had expected July's data would show an 8.7% jump from the prior year.

On a month-over-month basis, prices were unchanged from June to July.

This report also sparked some speculation the Fed may ease its pace of interest rate hikes. After raising its benchmark interest rate by 0.75% in June and July, data from the CME Group shows markets currently pricing in a 55% chance of the Fed raising rates by 0.50% next month.

But Agati isn't sure this week's data offers a firm conclusion on what the next policy steps will be from the Fed.

"While that might very well be the case [that inflation has peaked]," Agati said, "the market has rallied an awful lot assuming that the Fed's forward guidance and ultimately the terminal rate assigned by the current dot plot is really where policy is going to ultimately end."

As of June, the Fed's dot plot suggested benchmark interest rates would hit a range of 3.5%-3.75% by the end of next year. Currently, the Fed's benchmark interest rate range stands at 2.25%-2.5%.

The central bank has been raising rates in an effort to slow the economy and bring inflation back towards its 2% goal.

Federal Reserve Board Chairman Jerome Powell arrives for a news conference following a two-day meeting of the Federal Open Market Committee (FOMC) in Washington, U.S., July 27, 2022. REUTERS/Elizabeth Frantz
Federal Reserve Board Chairman Jerome Powell arrives for a news conference following a two-day meeting of the Federal Open Market Committee (FOMC) in Washington, U.S., July 27, 2022. REUTERS/Elizabeth Frantz

"We need a bit more in terms of data points to confirm that officially the peak [for inflation] is in," Agati said. "I think over the next couple of months, we can certainly get confirmation of that to the extent that CPI continues to move in the right direction, but we don't have confirmation from the Fed and Fed governors across the board that really the guidance that they have laid out is really it. I think the Fed is very much fixated on needing to do more, and that's a very vague term."

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv

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