Federal Reserve Bank presidents are warning that the central bank will keep raising rates until inflation is brought to heel. Wall Street traders don't want to take the hint. Markets jumped on Wednesday in anticipation of Consumer Price Index data that’s expected to show that inflation is continuing to slow in the wake of an aggressive series of central bank rate hikes. Economists are projecting the December figures, which will be released at 8:30 a.m., to show that prices climbed 6.5 percent over the last year — down from 7.1 percent in November. That would still be much, much higher than the Fed’s 2 percent target. And even as top policymakers like San Francisco Fed President Mary Daly and Atlanta Fed President Raphael Bostic argue that the war against inflation is far from over, a growing number of investors are pricing in the possibility of Fed hawks sheathing their talons in the new year. “The market is trying to believe that for sure,” Luis Alvarado , an investment strategy analyst for the Wells Fargo Investment Institute, said in an interview on Wednesday. “However, — and this is a big however — we've heard from a lot of Fed presidents over the last few weeks [that] although we might get a slower print, the job’s not done.” That’s making things complicated for Fed Chair Jerome Powell. Or, as our Victoria Guida put it: “Powell is locked in a battle with investors, who can’t wait to celebrate the gradual easing of inflation. His message: Stop it.” “Powell, whose Fed is cranking up interest rates at the fastest clip in decades to kill the spike in consumer prices, finds himself in the odd position of pushing against financial markets because he wants to squeeze the flow of money pouring into the economy … “‘It is a very peculiar tango that we’re dancing here,’ said Torsten Slok, chief economist at Apollo Global Management. ‘On the one hand, the Fed must surely be very happy with inflation going down. But they don’t want markets to complicate the speed with which we’re going down.’” What to look for in the Labor Department’s release: Wilmington Trust Investment Advisors CIO Tony Roth , whose firm oversees roughly $153 billion of assets, told MM that he’ll be paying close attention to price growth in non-housing, non-medical service sectors. The price of consumer goods has fallen in recent months amid improving supply chains and slowing demand. But the labor market remains very strong, and Powell has warned that an overheated jobs picture could force employers to drive up wages to a degree that would further inflame inflation. “That's really where wages come through. And at the end of the day, it's all about wages and wage growth,” Roth said. IT’S THURSDAY — What else should we be keeping looking at in today’s CPI data? Please send tips to ssutton@politico.com and zwarmbrodt@politico.com.
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