Evelyn Reynolds

Investors, consumers, policymakers and economists have been caught off guard with just how stubborn price pressures have been to start 2024.
Heading into the year markets saw an accommodative Fed poised to cut interest rates early and often. That has changed dramatically.
This week was filled with bad economic news, with each day literally bringing another dose of reality about inflation.
Fed officials took notice of the higher readings, but did not sound panic alarms, as most said they still expect to cut later this year.

A sign advertising units for rent is displayed outside of a Manhattan building on April 11, 2024 in New York City.
Spencer Platt | Getty Images

The early data is in for the path of inflation during the first three months of 2024, and the news so far is, well, not good.
Pick your poison. Whether it’s prices at the register or wholesale input costs, while inflation is off the blistering pace of 2022, it doesn’t appear to be going away anytime soon. Future expectations also have been drifting higher.

Investors, consumers and policymakers — even economists — have been caught off guard with just how stubborn price pressures have been to start 2024. Stocks slumped Friday as the Dow Jones Industrial Average coughed up nearly 500 points, dropping 2.4% on the week and surrendering nearly all its gains for the year.
“Fool me once, shame on you. Fool me twice, shame on me,” Harvard economist Jason Furman told CNBC this week. “We’ve now had three months in a row of prints coming in above just about what everyone expected. It’s time to change the way we think about things going forward.”
No doubt, the market has been forced to change its thinking dramatically.

Even import prices, an otherwise minor data point, contributed to the narrative. In March, it posted its biggest increase for a three-month period in about two years. All of it has amounted to a big headache for markets, which sold off through most of the week before really hitting the skids Friday.
As if all the bad inflation news wasn’t enough, a Wall Street Journal report Friday indicated that Iran plans to attack Israel in the next two days, adding to the cacophony. Energy prices, which have been a major factor in the past two months’ inflation readings, pushed higher on signs of further geopolitical turmoil.

“You can take your pick. There’s a lot of catalysts” for Friday’s sell-off, said market veteran Jim Paulsen, a former strategist and economist with Wells Fargo and other firms who now writes a blog for Substack titled Paulsen Perspectives. “More than anything, this is really down to one thing now, and it’s the Israel-Iran war if that’s going to happen. … It just gives you a great sense of instability.”

High hopes dashed

In contrast, heading into the year markets saw an accommodative Fed poised to cut interest rates early and often — six or seven times, with the kickoff happening in March. But with each months’ stubborn data, investors have had to recalibrate, now anticipating just two cuts, according to futures market pricing that sees a non-zero probability (about 9%) of no reductions this year.
“I’d love the Fed to be in a position to cut rates later this year,” said Furman, who served as chair of the Council of Economic Advisers under former President Barack Obama. “But the data is just not close to being there, at least yet.”
This week was filled with bad economic news, with each day literally bringing another dose of reality about inflation.
It started Monday with a New York Fed consumer survey showing expectations for rent increases over the next year rising dramatically, to 8.7%, or 2.6 percentage points higher than the February survey. The outlook for food, gas, medical care and education costs all rose as well.
On Tuesday, the National Federation of Independent Business showed that optimism among its members hit an 11-year low, with members citing inflation as their primary concern.
Wednesday brought a higher-than-expected consumer price reading that showed the 12-month inflation rate at 3.5%, while the Labor Department on Thursday reported that wholesale prices showed their biggest one-year gain since April 2023.

Finally, a report Friday indicated that import prices rose more than expected in March and notched the biggest three-month advance since May 2022. On top of that, JPMorgan Chase CEO Jamie Dimon warned that “persistent inflationary pressures” posed a threat to the economy and business. And the University of Michigan’s closely watched consumer sentiment survey came in lower than expected, with respondents pushing up their inflation outlook as well.

Still ready to cut, sometime

Fed officials took notice of the higher readings but did not sound panic alarms, as most said they still expect to cut later this year.
“The economy has come a long way toward achieving better balance and reaching our 2 percent inflation goal,” New York Fed President John Williams said. “But we have not seen the total alignment of our dual mandate quite yet.”
Boston Fed President Susan Collins said she sees inflation “durably, if unevenly” drifting back to 2% as well, but noted that “it may take more time than I had previously thought” for that to happen. Minutes released Wednesday from the March Fed meeting showed officials were concerned about higher inflation and looking for more convincing evidence it is on a steady path lower.

While consumer and producer price indexes captured the market’s attention this week, it’s worth remembering that the Fed’s attention is elsewhere when it comes to inflation. Policymakers instead follow the personal consumption expenditures price index, which has not been released yet for March.
There are two key differences between the CPI and the PCE indexes. Primarily, the Commerce Department’s PCE adjusts for changes in consumer behavior, so if people are substituting, say, chicken for beef because of price changes, that would be reflected more in PCE than CPI. Also, PCE places less weighting on housing costs, an important consideration with rental and other shelter prices holding higher.
In February, the PCE readings were 2.5% for all items and 2.8% ex-food and energy, or the “core” reading that Fed officials watch more closely. The next release won’t come until April 26; Citigroup economists said that current tracking data points to core edging lower to 2.7%, better but still a distance from the Fed’s goal.

Adding up the signals

Moreover, there are multiple other signals showing that the Fed has a long way to go.
So-called sticky price CPI, as calculated by the Atlanta Fed, edged up to 4.5% on a 12-month basis in March, while flexible CPI surged a full percentage point, albeit to only 0.8%. Sticky price CPI entails items such as housing, motor vehicle insurance and medical care services, while flexible price is concentrated in food, energy and vehicle prices.
Finally, the Dallas Fed trimmed mean PCE, which throws out extreme readings on either side, to 3.1% in February — again a ways from the central bank’s goal.
A bright spot for the Fed is that the economy has been able to tolerate high rates, with little impact to the employment picture or growth at the macro level. However, there’s worry that such conditions won’t last forever, and there have been signs of cracks in the labor market.
“I have long worried that the last mile of inflation would be the hardest. There’s a lot of evidence for a non-linearity in the disinflation process,” said Furman, the Harvard economist. “If that’s the case, you would require a decent amount of unemployment to get inflation all the way to 2.0%.”
That’s why Furman and others have pushed for the Fed to rethink it’s determined commitment to 2% inflation. BlackRock CEO Larry Fink, for instance, told CNBC on Friday that if the Fed could get inflation to around 2.8%-3%, it should “call it a day and a win.”
“At a minimum, I think getting to something that rounds to 2% inflation would be just fine — 2.49 rounds to two. If it stabilized there, I don’t think anyone would notice it,” Furman said. “I don’t think they can tolerate a risk of inflation above 3 though, and that’s the risk that we’re facing right now.”

Don’t miss these exclusives from CNBC PRO More

Western-style boot sales climbed more than 20% the week after Beyoncé’s “Cowboy Carter” was released late last month, Circana reported.
Retailers and industry analysts have already taken note of the trend.
Though cowboy boots may typify the Western look, other pieces, including denim, can also ride the wave.

Beyoncé leaves the Luar fashion show at 154 Scott in Brooklyn during New York Fashion Week on Feb. 13, 2024.
James Devaney | GC Images | Getty Images

Western boots have a new protector in Beyoncé.
The country fashion staple’s sales surged more than 20% in the week after the music superstar released her “Cowboy Carter” album, according to consumer behavior firm Circana. That can spell good news for companies making the iconic shoe, as well as other items that fit the same Wild West aesthetic.

“Cowboy Carter,” which came out late last month, marked the “Halo” singer’s foray into the country genre. Even before the full album dropped, Circana reported notable boosts to unit sales for this style of boot following the release of singles “Texas Hold ‘Em” and “16 Carriages.”
The 32-time Grammy winner’s latest project adds to a groundswell of cultural support for stagecoach-inspired styles. Louis Vuitton unveiled an American Western line during Paris Fashion Week earlier this year, featuring models in everything from cowboy hats to bolo ties. This look has also caught a bid through the ongoing Eras Tour, as some attendees opt to channel Taylor Swift’s pre-pop days as a country singer.
Retailers and industry followers have already taken note of the trend.
Beyoncé’s chart-topping album can provide a same-store sales bump and help lasso in women shoppers at Boot Barn, said Williams Trading analyst Sam Poser. He upgraded his rating on the California-based retailer to buy on Thursday and raised his price target by $33 to $113, which now implies an upside of about 12%.

Stock chart icon

Boot Barn, Year to Date

Adding to the momentum is the beginning of busy seasons for rodeos and music festivals, Poser said. With these positive trends, he said guidance for the current quarter and full fiscal year should exceed Wall Street consensus estimates.

“We have little doubt that there is a correlation” between the increased attention on Western clothing and the release of Beyoncé’s eighth studio album, Poser said.
Boot Barn shares have climbed more than 4% since the start of April, defying the broader market’s pullback. That adds to the stock’s rally over the course of 2024, with shares jumping about 30% compared with the start of the year.

‘Really trending’

Though cowboy boots may typify the Western look, other pieces can also ride the wave.
Levi Strauss CEO Michelle Gass told analysts earlier this month that the denim maker works to ensure the “brand remains in the center of culture.” That mission was aided by “Levii’s Jeans,” a song on the “Cowboy Carter” album featuring Post Malone.

Justin Sullivan | Getty Images

“I don’t think there’s any better evidence or proof point than having someone like Beyoncé, who is a culture shaper, to actually name a song after us,” Gass said on the company’s earnings call last week.
Gass said denim is “having a moment” and the Western style is “really trending,” including in fashion and music.
But denim suppliers have not been able to sidestep the recent market slide. Levi Strauss shares have dropped more than 3% in April. Kontoor Brands, whose styles under the Wrangler brand include a “cowboy cut” jean, has tumbled around 11% in the month.

Don’t miss these exclusives from CNBC PRO More

BlackRock CEO Larry Fink expects the Fed to do some reductions this year, while it may have to concede that inflation will remain elevated.
Fed officials have expressed reluctance to start cutting until they see more convincing evidence that the pace of price increases is heading back to target.

DUBAI, UNITED ARAB EMIRATES – DECEMBER 04: Larry Fink, CEO of Blackrock, speaks at a roundtable discussion titled: “Financing the New Climate Economy,” during which he described the urgent need for a “new financial landscape” for funding investments into the global energy transition on day five of the UNFCCC COP28 Climate Conference at Expo City Dubai on December 04, 2023 in Dubai, United Arab Emirates. The COP28, which is running from November 30 through December 12, is bringing together stakeholders, including international heads of state and other leaders, scientists, environmentalists, indigenous peoples representatives, activists and others to discuss and agree on the implementation of global measures towards mitigating the effects of climate change. (Photo by Sean Gallup/Getty Images)
Sean Gallup | Getty Images News | Getty Images

BlackRock CEO Larry Fink predicted Friday that the Federal Reserve likely will still cut interest rates this year but won’t meet its inflation target.
With markets on edge over the direction of monetary policy, the head of the world’s largest money manager said it’s unlikely the central bank will hit its 2% goal anytime soon. A report earlier this week showed inflation running at a 3.5% annual rate.

Still, Fink expects the Fed to do some reductions this year while it may have to concede that inflation will remain elevated.
“When everybody said we’re going to have six cuts earlier this year, from noted economists, I said maybe two,” Fink said during an interview on CNBC’s “Squawk on the Street.” “I’m still saying maybe two.”
Though that forecast was out of consensus in January and February, it’s consistent with the recalibrated market expectations since hot inflation readings became prevalent this year. Fed officials have expressed reluctance to start cutting until they see more convincing evidence that the pace of price increases is heading back to target.
But Fink said the central bank may have its sights set too high, or too low as the case might be for inflation.
“Inflation has moderated and we’ve always said inflation is going to moderate. But is it going to moderate to that terminal rate the Federal Reserve is looking for? I feel doubtful,” he said. “Do I believe that we could get a stable inflation between 2.8% and 3%? I’d call it a day and a win.”
Fink spoke the same day BlackRock reported quarterly earnings that topped Wall Street expectations both for profit and revenue. The company also said its assets under management hit a record of $10.5 trillion.

Don’t miss these exclusives from CNBC PRO More

The U.K. economy grew 0.1% in February, the Office for National Statistics said Friday.
That follows 0.2% growth in January, which economists said provided a strong indication the U.K. will exit recession at the start of the year.
Gross domestic product fell in the third and fourth quarters of 2023.

People shelters from the rain beneath a Union flag-themed umbrella as they walk past spring flowers in blossom, in St James’s Park in central London on April 10, 2024.
Justin Tallis | Afp | Getty Images

LONDON — U.K. gross domestic product rose 0.1% in February, the Office for National Statistics said Friday, providing another sign of a return to sluggish economic growth this year.
The month-on-month figure was in line with a projection in a Reuters poll. On an annual basis, GDP was 0.2% lower.

The economy contracted in the third and fourth quarters of 2023, putting the U.K. in a technical recession.
January recorded light growth, which was revised upward to 0.3% on Friday.
Construction output, which boosted growth at the start of the year, fell 1.9% in February. Instead, production output was the biggest contributor to the GDP, rising by 1.1% in February, while growth in the U.K.’s dominant services sector slowed to 0.1% from 0.3%.
The reading “all-but confirms the recession ended” last year, Paul Dales, chief U.K. economist at Capital Economics, said in a note.
“But while we expect a better economic recovery than most, we doubt it will be strong enough to prevent inflation (and interest rates) from falling much further as appears to be happening in the U.S.,” Dales added.

British inflation fell more than expected in March, to a nearly 2½-year low of 3.4%.
In the U.S., however, price rises came in higher than forecast at 3.5% this week, pushing back market bets for the start of interest rate cuts from the summer to September.
This has raised questions about whether central banks elsewhere will be influenced by a later start from the Federal Reserve than previously expected, particularly if the U.S. dollar strengthens.
Goldman Sachs on Friday revised its forecast for Bank of England rate cuts this year from five to four, projecting the trims will start in June, before slowing to a quarterly pace.
Simon French, chief economist at Panmure Gordon, told CNBC’s “Squawk Box Europe” on Friday that while the BOE is independent, policymakers will nevertheless be conscious of an upcoming U.K. national election, which politicians have suggested will be held in the second half of the year.
“Do you get [cuts] out of the way ahead of that general election? There is quite a lot of pressure from the governing party, not necessarily the prime minister but the chancellor has talked about expecting rate cuts.”
Overall, French said the figures strongly indicated the end of the recession but were “not a reason to hang out the bunting.”
Growth is below its pre-pandemic trend and lagging the U.S. but is on a par with much of Europe and showed signs of a pick-up in areas such as manufacturing and car production, French added. More

JPMorgan Chase CEO Jamie Dimon warned Friday that “persistent” inflation, “terrible wars and violence” and the Fed’s efforts to tighten financial conditions threaten an otherwise positive economic backdrop.
“Looking ahead, we remain alert to a number of significant uncertain forces,” the head of the the largest U.S. bank by assets said in announcing first-quarter earnings results.

JPMorgan Chase CEO and Chairman Jamie Dimon gestures as he speaks during the U.S. Senate Banking, Housing and Urban Affairs Committee oversight hearing on Wall Street firms, on Capitol Hill in Washington, U.S., December 6, 2023. 
Evelyn Hockstein | Reuters

JPMorgan Chase CEO Jamie Dimon warned Friday that multiple challenges, primarily inflation and war, threaten an otherwise positive economic backdrop.
“Many economic indicators continue to be favorable,” the head of the the largest U.S. bank by assets said in announcing first-quarter earnings results. “However, looking ahead, we remain alert to a number of significant uncertain forces.”

An “unsettling” global landscape including “terrible wars and violence” is one such factor introducing uncertainty both into JPMorgan’s business and the broader economy, Dimon said.
Along with that, he noted “persistent inflationary pressures, which may likely continue.”
Finally, on a somewhat related note, he noted the Federal Reserve’s efforts to draw down the assets it is holding on its $7.5 trillion balance sheet.
“We have never truly experienced the full effect of quantitative tightening on this scale,” Dimon said.
The latter comment references the nickname given to a process the Fed is employing to reduce the level of Treasurys and mortgage-backed securities it is holding.

The central bank is allowing up to $95 billion in proceeds from maturing bonds to roll off each month rather than reinvesting them, resulting in a $1.5 trillion contraction in holdings since June 2022. The program is part of the Fed’s efforts to tighten financial conditions in hopes of alleviating inflationary pressures.
Though the Fed is expected to slow down the pace of QT in the next few months, the balance sheet will continue to contract.
Taken together, Dimon said the three issues pose substantial unknowns ahead.
“We do not know how these factors will play out, but we must prepare the Firm for a wide range of potential environments to ensure that we can consistently be there for clients,” he said.
Dimon’s comments come amid renewed worries over inflation. Though the pace of price increases has come well off the boil from its June 2022 peak, data so far in 2024 has shown inflation consistently higher than expectations and well above the Fed’s 2% annual goal.
As a result, markets have had to dramatically shift their expectations for interest rate reductions. Where markets at the beginning of the year had been looking for up to seven cuts, or 1.75 percentage points, the expectation now is for only one or two that would total at most half a percentage point.
Higher rates are generally considered positive for banks as long as they don’t lead to a recession. JPMorgan on Friday reported an 8% boost to revenue in the first quarter, attributable to stronger interest income and higher loan balances. However, the bank warned net interest income for this year could be slightly below what Wall Street is expecting and shares were off nearly 2% in premarket trading. More