February PPI: Dented rate cut hopes, eyes on Fed dot plot

US equities (^GSPC, ^DJI, ^IXIC) are trading higher Thursday morning as the market reacts to hotter-than-expected inflation data in the form of February's Producer Price Index (PPI). Many on Wall Street believe that this reading will lower the probability that the Federal Reserve will cut interest rates sooner rather than later.

Yahoo Finance Reporters Alexandra Canal and Josh Schafer join the Live show to break down the PPI report, February's retail sales data, and how it may impact markets moving forward.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

JARED BLIKRE: Our top story today features paring gains this morning as hotter than expected inflation data continues to dent hopes that the Federal Reserve will cut interest rates in the coming months. Wholesale prices jumping 0.6% on the month. That was higher than the 3/10 of a percent forecast. Meanwhile, retail sales rising 6/10 of a percent month-over-month compared to an estimated 8/10 of a percent increase. We have got team coverage with Yahoo Finance's Allie Canal and Josh Schafer. Josh, let's begin with you on retail sales please.

JOSH SCHAFER: Yeah, Jared. So taking a look at retail sales, I think the big story here is just that we saw any sort of a rebound. We saw the number get revised down in January to minus 1.1% was that January number. So to see some level of a rebound here I think is just a positive sign when you think about the consumer still being in good shape, and especially with what Allie is about to talk about on the inflation front. I would say a number that-- it's good that this number wasn't much higher. I think we'd be starting to get to the point where people are getting concerned about economic data perhaps coming in too well with some of these inflation prints that we're getting.

SEANA SMITH: Yeah, certainly. And Josh, to that point, and Allie, to bring you in here on the conversation, there's a lot of focus on these PPI prints over the last several months because of what it really tells us about the overall inflation picture. Taking a look at this print, the Fed still has-- it looks like a longer way to go than maybe even the Street is realizing at this point.

ALEXANDRA CANAL: Yeah. And the producer price index measures the cost of goods for those producers. And similar to the consumer price index that we saw earlier this week, inflation continues to remain elevated according to the data. Producer prices rose 0.6% in February over the prior month. The expectation is that prices would hold steady at 0.3%. So PPI coming in hotter than expected and hotter than January's results.

Excluding volatile categories like food and energy because we do know that gas prices were elevated for the month of February, prices did rise 0.3% month-over-month. But that was also hotter than expected. It is a deceleration from January 0.5% monthly gain. And then on a yearly basis, PPI final demand coming in at 1.6%, hotter than January's 0.9% rise. So the Fed still has its work cut out for it. But I am looking at what the markets are pricing in right now. They are still very firm on a June rate cut.

They're still very firm on three cuts coming this year, I think next week if we were going to be receiving the Fed dot plot. If there's any continued movement there, that could have a serious reaction on the markets. But if that comes in as expected, if there's three rate cuts that the Fed thinks are coming, if there's three rate cuts the market thinks are coming, that's ultimately going to be a good thing for stocks. And we are seeing Treasury yields go up a bit higher, but stocks futures still in the green right now.

SEANA SMITH: Yeah the market hearing what it wants to hear, taking a look at what it wants to look at here within these reports. Yeah. Just another day. And it's the same sort of--

[INTERPOSING VOICES]

SEANA SMITH: All right, guys. Thanks so much for breaking that down.