After a series of data releases in late 2023 that showed inflation retreating, investors greeted 2024 constructively, apparently anticipating that the Federal Reserve was on the verge of cutting rates aggressively. In early January, Fed funds futures trading implied that the market was expecting as many as seven rate cuts in 2024. Of course, that was before two CPI readings came in hotter than expected, softening the ebullience that had characterized the markets 

Fundstrat Head of Research Tom Lee saw both CPI prints as aberrations, citing seasonality and potential methodology-related reasons for their deviation from trend. Lee reminded clients that inflation was continuing to tank, while also arguing that Fed economists would not use one – or two – months of unexpected inflation readings to change the course that the central bank had already signaled in previous meetings. 

Fed officials strove to communicate a similar message. For example, during a speech in the Council on Foreign Relations after January CPI was released, Chicago Fed President Austan Goolsbee said that despite the hotter-than-expected numbers, “It's totally clear that inflation is coming down,” telling his audience not to get “amped up when you get one month of CPI that was higher than...

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