Analysis by Antonio Di Giacomo, Financial Markets Analyst for LATAM at XS

“The S&P 500 fell more than 1%, February 14, 2025, reaching the 6,005-point zone after releasing Consumer Price Index (CPI) data, which came in higher than expected. This report significantly reduced the Federal Reserve’s expectations of interest rate cuts, creating uncertainty in financial markets. Investors reacted with massive sell-offs, pushing the index to last week’s lows.

The year-over-year CPI stood at 3.0%, while the core CPI rose to 3.3%, both above forecasts. On a monthly basis, January 2025’s CPI increased by 0.5% versus the expected 0.3%, while the core CPI registered a 0.4% rise, exceeding the projected 0.3%. These figures reinforce the perception that inflation remains challenging for U.S. monetary policy. The price rise for essential goods and services also suggests persistent inflationary pressure.

The market had been anticipating potential interest rate cuts by the Federal Reserve to stimulate economic growth. However, the persistence of higher-than-expected inflation makes monetary easing in the short term more difficult. Investors now fear the Fed will maintain its restrictive policy longer than expected. This scenario generates increased volatility in financial markets, impacting the performance of other risk assets.

Federal Reserve Chairman Jerome Powell reiterated that while inflation is approaching the 2% target, it has not yet reached a level that justifies rate cuts. This message further heightened market concerns, suggesting that rate reductions could be delayed until late 2025, depending on economic data trends. Powell’s comments made it clear that the Fed needs to see more consistent signs of controlled inflation before shifting its stance.

The market’s initial reaction was a sharp decline, reflecting the impact of uncertainty surrounding monetary policy. However, as the session progressed, the S&P 500 showed signs of recovery, reaching the 6,050-point zone by the close of trading in New York. This behavior highlights market volatility and sensitivity to macroeconomic data. Despite the rebound, uncertainty persists, and further declines could occur in the short term.

Despite the partial recovery, the outlook remains uncertain. Investors may now focus on upcoming economic reports and statements from Fed officials, looking for clues on the future direction of monetary policy and its impact on markets. External factors such as labor market trends and geopolitical stability will also play a key role in shaping the stock market’s trajectory.

In conclusion, releasing higher-than-expected inflation data has caused market nervousness, affecting the S&P 500’s performance and dampening hopes for near-term rate cuts. In the coming months, uncertainty over future Federal Reserve decisions will remain a key factor in market developments. Investors must stay vigilant for new economic signals to adjust their strategies in an increasingly challenging environment.”