February 14, 2018
Inflation is picking up noticeably as the CPI jumped 0.5 percent in January while the core rate rose a very noticeable 0.3 percent. Prices for many basics rose sharply in the month including transportation, medical services, and apparel. The results fit in with both the wage rise in the January employment report and the inflation upgrade in last month's FOMC statement.
The risk that inflation is beginning to accelerate is raising talk that the Fed may raise rates less gradually than expected, perhaps on four occasions this year vs the three that are already expected. Stocks opened lower but then rose through the session with the Dow ending with a very sharp 1.0 percent gain to 24,893.
Other economic news points to less strength, at least for consumer spending as retail sales proved weak in January at the same that a solid gain for December was revised away. The December revision downgrades both the strength of the holiday shopping season and also fourth-quarter GDP.
The dollar had been on a rally but posted a sharp loss for the second straight session, down 0.8 percent on the dollar index to 88.99. The 2-year Treasury yield, where increases had been trailing the 10-year, rose a sharp 6 basis points to 2.16 percent as demand for safety fell as stocks climbed. Gold rose nearly $25 to $1,355 while oil jumped $1-1/2 and is above $60.50.