Here's why the Fed cares about the cost of your haircut and doctor's visit

America’s inflation problem has improved in some ways, but services prices remain stubborn, putting pressure on the Federal Reserve to keep interest rates higher. In January 2024, overall consumer prices rose 0.3%, the largest monthly increase since September. While the inflation of goods continued to slow, the cost of services, including medical care and haircuts, increased significantly. The Personal Consumption Expenditures price index also showed stable services prices at the beginning of the year. Investors have adjusted their expectations on rate cuts due to disappointing inflation readings. The Labor Department will release the Consumer Price Index for February on Tuesday.

Services inflation poses a challenge for the Federal Reserve. They want to see broader disinflation, but inflation remains focused on goods rather than services. The Fed may delay rate cuts and monitor the economy closely to avoid a deep recession. Although concerns of inflation stalling persist, investors are now pricing in a soft landing instead of a recession. More disappointing inflation reports could delay rate cuts further, which may pose challenges for the market’s current valuation.

President Joe Biden addressed the housing affordability crisis during the State of the Union address. He proposed actions such as new tax credits and legislation to increase homebuilding. Affordable housing advocates praised the plan, but critics argue that it doesn’t address the key factor behind the crisis: the lack of available homes.

Earnings reports from Oracle, Asana, and Vail Resorts are expected on Monday. Kohl’s and Guess will report earnings on Tuesday. The US Labor Department will release the Consumer Price Index for February, and the US Treasury Department will release its monthly budget statement for February. Earnings reports from Lennar, Dollar Tree, and Petco are anticipated on Wednesday. The UK’s Office for National Statistics will release January figures on gross domestic product and trade. On Thursday, Adobe, Dollar General, Ulta Beauty, Dick’s Sporting Goods, Getty Images, Build-A-Bear Workshop, and Zumiez will report earnings. The US Labor Department will release the Producer Price Index for February and data on jobless benefits and retail sales. The US Labor Department will report export and import prices in February. The New York Fed will release the Empire State Manufacturing Index for March, the Federal Reserve will release February figures on industrial production, and the University of Michigan will release a preliminary reading of consumer sentiment in March.