As things stand, Fed economists expect GDP to grow 2.5 percent in 2018, according to projections in December. That was revised up from the 2.1 percent estimate in September.
However, the Atlanta Fed just sharply cut its expectations for first-quarter growth. Its GDP model just a few weeks ago had been projecting 5.4 percent growth, but that was sliced first to 4 percent then 3.2 percent after the data releases Wednesday.
Wall Street had been slowly coming around to the prospects of faster-than-anticipated growth both in the economy and inflation for 2018. A 2.9 percent average hourly earnings increase in January especially stoked inflation worries.
Should the benchmark 10-year Treasury note yield continue to trek to 3 percent, that would indicate the recent stock market losses “have a little further to go.” The S&P 500 is down about 5 percent for February.
To be sure, the January numbers aren’t conclusive on inflation trends.
One of the biggest drivers in the increase, a 1.7 jump in clothing, is a classic seasonal move that could unwind in subsequent months. The price gain was hard to square with the sales decline, indicating the data are noisy and could be revised ahead.
“We believe that the higher inflation reading in January is unlikely to be the start of a new trend and, while we do believe that inflation is likely to continue to inch higher over the 2018, do not see a sharp, sustained, move in inflation as a likely outcome this year,” Drew Matus, chief market strategist at MetLife Investment Management, said in a note.
Market reaction provided few clues.
Stocks sloshed around in morning trading, with the Dow industrials opening down more than 100 points before going positive then trading around breakeven at 11 a.m. ET. Bonds that are indexed for inflation, called Treasury Protected Inflation Securities, also were little changed.
WATCH: Economist Joe LaVorgna sees inflation scare overblown.