Higher inflation fears gripped financial markets at the end of last week following the latest read on inflation expectations from the University of Michigan Surveys of Consumers. One-year-ahead inflation expectations surged to 4.3% in February, up sharply from 3.3% in January – the highest level since November 2023. Longer-term consumer inflation expectations also ticked up slightly to 3.3% from 3.2%.
Why Does This Matter?
When consumers believe that prices will rise rapidly, they don’t wait – they spend now. Big-ticket purchases, long-delayed vacations, and front-loaded demand can put additional upward pressure on prices. On the labor front, when workers expect higher future costs, they tend to push for bigger pay increases, creating a wage-price feedback loop that can make inflation more persistent.
But perhaps these inflation fears are overblown. Here’s why:
The Economy Is Slowing
✅ The labor market is weakening. Hiring rates and job quitting activity remain low. With fewer job opportunities, workers lack the leverage to negotiate salary increases. Historically, the largest wage gains have come from job-switching, but job-to-job mobility is now at a standstill.
✅ Employment growth is likely to ease further.
As job prospects weaken and expected future income declines, consumer spending will likely slow, leading to a higher savings rate.
What This Means for Policymakers
For the Federal Reserve, the best approach is patience. While economic growth is slowing, the inflation outlook remains muddled by factors such as:
For now, the policy rate will remain unchanged, but any Fed move in 2025 is more likely to be a rate cut than a hike.
Key Events & Economic Reports to Watch This Week
As we approach the midpoint of Q1 2025, several major reports and events could shape market expectations:
📊 Consumer Price Index (CPI) – Wednesday, February 12
The January CPI report will provide a fresh look at inflation.
Consensus forecast: Headline inflation to ease to 2.8% YoY (from 2.9% in December).
Core CPI (excluding food & energy) is expected at 3.1% YoY, down from 3.2% in December.
📉 Producer Price Index (PPI) – Thursday, February 13
PPI offers a forward-looking gauge of inflationary pressures at the wholesale level.
Any unexpected acceleration in producer costs could signal higher consumer prices ahead.
🛍️ Retail Sales – Friday, February 14
January retail sales will reflect consumer spending trends.
December’s report showed modest growth, with shoppers shifting toward value-based spending.
Weak numbers could raise concerns about economic momentum.
🎙️ Fed Chair Powell’s Testimony – Tuesday & Wednesday, February 11–12
Powell will testify before Congress, offering insight into monetary policy and the Fed’s economic outlook.
His comments will be closely watched for any shifts in the interest rate trajectory.
Bottom Line
While inflation concerns resurfaced, weakening job growth and slowing consumer spending could keep inflation in check. Markets are on edge, but the Fed is still more likely to cut rates in 2025 than hike.
The economy will have to slow once the 10-15 million illegal deadbeats leave the country which was a Biden created cottage industry of wasted social services spending in corrupt borrowed money. Also once all the wasted corruptly spent Biden money is revealled and stopped by DOGE, lots of worthless unproductive jobs will be lost unless the money can be directed into productive American industry, or used to pay off national debt and lower the hundreds of Billions in interest we pay each year on it.
ALONG with all those NGO’s and charities who FUNNEL TAX DOLLARS to the hands of those illegal invaders.