Markets had embraced, with too little critical thinking, the narrative of a quasi-automatic, very soft landing leading to both large and early Fed rate cuts.
It’s tempting to dismiss the response to the latest inflation data as an outsized reaction to a slight miss in numbers that are particularly vulnerable to seasonal noise. Yet, the development is also indicative of deeper issues whose influence may well be with us for the next few months and quarters.
Consumer prices rose in January by more than expected for both the headline and core measures, over a monthly and annual horizon. While this clearly constituted “data misses”, they were small deviations from consensus projections that could well have reflected seasonal dynamics. Still, the media and market reactions were considerable.
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Bloomberg Opinion
Mohamed A. El-Erian, is president of Queens’ College at the University of Cambridge and a professor at the Wharton School of the University of Pennsylvania
