Who’s Back of the Week: CPI Surprise 

Oh Boy – here we go again! The Federal Reserve’s Consumer Price Index in what seems to be a surprise to many raised by a shocking 0.3% Year over Year. [1] So, where does this leave us investors? 

Let us take a broader look at the overall market and some of the recent bullish outlook that was being projected. Year to date, the S&P 500 had just broken historic all time above 5000 and was returning a year leading 5.42%. [3] FED chair Jerome Powell also in a 60 minutes interview broadcasted just over a week ago noted him and his team were on track to cut three times in 2024. Powell also stressed that the nation’s job market and economy are strong with little signs of a recession incoming. Now, if you have gotten this far you are probably wondering- Why is the CPI Surprise a bad thing? To answer this question, we need to take a broader look at the underlying fundamentals of the economy that it seems so many, the experts as well, have forgotten. [4]

By now we all know the story of how we got to this point with the fight against inflation. The FED printed about $814 Billion dollars of stimulus checks for American Citizens and Businesses to try and keep the economy afloat during the early days of COVID-19. When money is more abundant in an economy inflation is more likely to occur because the value of the dollar falls. In turn, the price of goods rises. The tank of gas you buy, up! The shoes you wanted to buy, up! That car you and the misses wanted to buy; you guessed it. 

You felt it, I felt it, you get this I know but stay with me here. 

Fast Forward through 2022 and 2023 the Federal Reserve decided it had no choice but to raise rates 5.52% percentage points (there were no rate increases January 1st 2021 to May 23rd 2023) [2] 

  • March 16, 2022: +0.25 percentage point
  • May 4, 2022: +0.50 percentage point
  • June 15, 2022: +0.75 percentage point
  • July 27, 2022: +0.75 percentage point
  • September 21, 2022: +0.75 percentage point
  • November 2, 2022: +0.75 percentage point
  • December 14, 2022: +0.50 percentage point
  • February 1, 2023: +0.25 percentage point
  • March 22, 2023: +0.25 percentage point
  • May 3, 2023: +0.50 percentage point


So, when you look at it comparatively speaking…. Is it time to cut? The economy seems to be still inflated according to our most recent CPI reading (February 13th 2024). Jobs seem to be steady. Housing prices are still staying relatively high. While the consumer cannot keep the money in their pockets long enough to blink it seems. So why did everyone feel it was time to cut? The answer: Transparence.  

Before 1994 the FED did not publicly speak. There were no Formal Press Conferences that allowed firms, institutional, or retail investors alike to get a hold of any insight as to what the next move could be. It was an ominous hand behind a curtain that came out once every few weeks to report and you were given the numbers. Media also were not allowed to ask the FED Chair direct questions on the state of the economy or what their outlook was. Today the media, analysts, firms, and even individuals on the street guess based on the FED chair’s tone and keywords from his speech as to what the FEDs next move will be. 

Why was everyone so caught offside then by today’s CPI index? 

At the beginning of 2024, analysts of many notable firms were baking in the idea of several possible rate cuts throughout the year. That would mean a rate cut about every 7 weeks, if all rate cuts were equal, to get back to the FEDs ideal target interest rate of 2-3%. The FED, as stated earlier, was a bit dovish on the rate cuts to come this year (rightfully so as they do not want to undercut the rates and be left with equal or even more inflation than before). While today as new data was received – we are in a whole new ideal. [4]

I for one have been harping that I did not think rates needed to move until we reached the edge of recession. I understand we cannot predict a recession, however, we have very, very, well documented ways to see signs of recession before they occur. Why does this matter – because it is clear what is wrong and it is sad. People are getting greedy. The US Government handed US consumers and businesses alike so much money. We partied, we bought things we didn’t actually need, some even bought life changing investments they never thought they would buy in a million years. Like the ole saying goes, one day the chickens are going to come home to roost. We need to realize inflation is not going to disappear in two years’ time, how can it? You would not expect your bathtub to drain in under a minute when it is filled to the top would you? 

Where do we go from here? 

We will have to wait and see at the FED’s next meeting if they were just as surprised as we were on the street. This will give us a more accurate reading on if they are still expecting 3 rate cuts or if it is time to start pivoting our bullish outlooks. 

As both an advisor and investor recommend these little tips:

  • Asset classes: Spread your investments across different asset classes, such as stocks, bonds, real estate, and commodities. Each asset class reacts differently to inflation, so diversification can help mitigate risk.
  • Within asset classes: Diversify within each asset class. For example, within stocks, invest in a variety of sectors and company sizes. This helps reduce concentration risk and the impact of specific company or sector declines.
  • Invest in companies with strong fundamentals and pricing power: Look for companies with proven track records, sustainable competitive advantages, and the ability to raise prices to offset inflation.
  • Dividend-paying stocks: Dividends provide a return even if stock prices don’t appreciate, and they can grow over time, increasing your overall income stream.

Seek professional advice:

  • A financial advisor can help you develop a personalized investment strategy for your specific needs and risk tolerance, considering inflation and other factors.

Additional tips:

  • Consider reducing your exposure to cash and bonds: Cash and traditional bonds lose purchasing power to inflation over time.
  • Be prepared for volatility: Inflation can lead to increased market volatility, so be prepared for potential short-term fluctuations in your portfolio value.
  • Stay informed: Keep up-to-date on economic news and how inflation is impacting different sectors and asset classes.
  • Focus on your long-term goals: Do not make impulsive decisions based on short-term market fluctuations. Remember your investment goals and time horizon, and stay disciplined with your strategy.

It is important to remember that there is no single “one size fits all” approach to weathering inflation. The best strategy for you will depend on your individual circumstances, risk tolerance, and investment goals. However, by following these tips and seeking professional advice, you can make informed decisions to help your portfolio withstand the effects of inflation and address your long-term financial goals.

Disclaimer: The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. No strategy assures success or protects against loss.

  1. Reuters – U.S. inflation unexpectedly ticks up in January, Fed rate path in focus: https://www.reuters.com/markets/us/view-january-cpi-accelerates-trend-
  2. Federal Reserve Board: https://www.federalreserve.gov/
  3. Yahoo Finance: https://finance.yahoo.com/
  4. CBS News: https://www.cbsnews.com/news/full-transcript-fed-chair-jerome-powell-60-minutes-interview-economy/

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