PPI comes in under expectations

but Mester tells the AP "we're not at 5% yet"

The Producer Price Index came in today and it was well below the consensus estimates.

Final demand figures came in at 6.2% year-over-year increase. This was well below the consensus estimate of 6.8%. It is the lowest PPI rate since March of 2021. The PPI peaked at 11.7% in March of 2022. It appears that US inflation is slowing and fast.

In addition to a disappointing PPI number, retail sales also continues to disappoint.

Charlie Bilello @charliebilello

In nominal terms, US Retail Sales still appear to be strong, rising 5.2% over the last year. But after adjusting for inflation, the story changes. Real Retail Sales peaked in March 2021 & are down 1.2% over the last year. This was the 4th consecutive month w/ a YoY real decline.

Due to the information coming in, the market is overwhelmingly predicting a 25 basis point raise on the Fed Funds Rate at the FOMC’s February 2nd meeting.

I strongly believe that the market is making a mistake here. If Powell raises rates 50 basis points, it is going to be a shock to the system. Fed heads continue to signal that the job isn’t done yet. The latest is Fed President Loretta Mester.

“I still see the larger risk coming from tightening too little.”

“Mester noted that the economy and the financial markets “were able to handle” the half-point hike that the Fed carried out in mid-December.”

“We’re not at 5% yet, we’re not above 5%, which I think is going to be needed given where my projections are for the economy. I just think we need to keep going, and we’ll discuss at the meeting how much to do.”

Even “Fed Whisperer” Nick Timiraos caught on to Mester’s interview:

Nick Timiraos @NickTimiraos

Cleveland Fed President Loretta Mester tells the AP's @ChrisRugaber rates need to continue rising: “We’re not at 5% yet, we’re not above 5%, which I think is going to be needed." On 25 v 50 bps in Feb: “We’ll discuss at the meeting how much to do.”

apnews.comFed’s Mester: Rate hikes have begun to quell US inflationWASHINGTON (AP) — Growing evidence that high inflation is finally easing shows that the Federal Reserve’s sharp interest rate hikes are working as intended, says Loretta Mester, a key Fed policymaker .

This could be the meeting were opinions diverge. Prior to this meeting, the Fed has been on a streak of consistent unanimous decisions. Harker, Collins, and Bostic have all signaled that a quarter-point increase should be sufficient. However, only Harker votes. It is interesting to see Nick Timiraos highlight Mester here because she doesn’t have a vote either. This is going to be a big meeting for Powell. He doesn’t want to be remembered as an Arthur Burns. He wants to get the job done. Squash inflation, the ECB, and Davos all in one swoop. It is looking more likely by the day that Powell is getting closer to achieving that mission.

Tom Luongo (Give Deflation a Chance!) @TFL1728

BWAHAHAHAHAHA... This is the real "Pivot" The ECB is the one trapped. The FED has them cornered. So many simply can't even identify the players at the table no less parse their next moves. #DAVOS is losing.

zerohedge.comStocks Spike On Report ECB To Slow Hikes After February“The prospect of a smaller 25-point increase at the following meeting in March is gaining support.”

The best thing to do in a situation like this is to turn to the most trusted man on Wall Street to see what he has to say on the matter.