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U.S. inflation unexpectedly rose to 3% in January, strengthening the Fed to lower interest rates, hitting slow-moving cases of stocks and government bonds.
The consumer price index figures on Wednesday exceeded Reuters’ expectations of economists, who predicted inflation would remain stable at 2.9% in December.
Monthly growth in January was also ahead of expectations, with an estimated 0.3% and 0.5%.
The surge in eggs has contributed greatly to this growth, 15.2% and 53% of the year, partly due to the effects of avian flu.
Data from the Bureau of Labor Statistics has led investors to bet the Fed will lower interest rates this year. The futures market is expected to cut for the first time by September before the release of the data, reducing the chances by 40% by the end of the year.
“I would say we’re close but not there [yet] About inflation,” Fed Chairman Jay Powell told lawmakers on Wednesday. “Inflation printing is the same thing today. ”
“We have made huge progress, but we haven’t. So we have to keep policy restrictions right now,” Powell said in a House hearing after the data was released.
“The market doesn’t believe we will see disbandment later this year, and today’s data certainly won’t give evidence,” said Eric Winograd, chief economist at Alliancebernstein. If inflation keeps falling, the Fed will not lower interest rates at all.”
After the data was released, the yield on the two-year yield (tracking interest rate expectations and inverse proportional) of U.S. Treasury bills rose 0.08 percentage points to nearly 4.37%.
The open rate of U.S. stocks is low. The S&P 500 fell 1.1%, but recovered 0.4% of the ground in afternoon trading. Nasdaq High Technology has less than 0.1% of its composite materials, while the dollar scale for the other six currencies is higher than the score.
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Inflation data on Wednesday also showed that CORE CPI (changes both food and energy prices have changed, rising to 3.2% in December in January.
Its main interest rate is 4.25% to 4.5% after the Fed ignored President Donald Trump’s call for a sharp cut in borrowing fees.
On Tuesday, Powell told Congress that the central bank would continue to “do our work and stay away from politics.”
But on Wednesday, Trump’s demands for his Truth Social Platform were updated. “Interest rates should be lowered, which will go hand in hand with the upcoming tariffs!!!” the US President announced. “Let’s rock, America!”
CPI data will raise concerns among economists that the world’s largest economy has heated up again as Trump is pushing towards widespread tariff plans, crackdown on immigration and widespread tax cuts that many economists fear, which could be It will trigger new growth in inflation.
Since returning to the White House on January 20, Trump has begun mass deportations of undocumented immigrants and imposed a 10% tax on Chinese imports.
He also announced that almost all imports from Canada and Mexico, as well as all steel and aluminum imports, will take effect in March.
Powell said it was too early to judge the impact of tariffs on economic and monetary policy, as it depends on the details of the tax.
Whitney Watson of Goldman Sachs Asset Management said that coupled with the strong state of the U.S. job market, inflation data on Wednesday could strengthen the Fed’s “cautious easing approach.” “We think the Fed may remain ‘waiting way’ for the time being,'” she added.
While CPI read “almost all predictions”, Powell provided some cautious notes to lawmakers on Wednesday.
“One of them is that we’re not excited about a good read or two and we’re not excited about the reader’s readings. The second thing is that we target PCE inflation because we think it’s just a better currency Measure of inflation.” He said at the hearing, referring to the personal consumption expenditure index.
Powell said the Fed will get better price pressure when the producer price index is released Thursday.
