Inflation Unexpectedly Rose in January. Here's What That Means for Rate Cuts. The U.S. Bureau of Labor Statistics released its January Consumer Price Index on Wednesday.
By Sherin Shibu Edited by Melissa Malamut
Key Takeaways
- Inflation rose by 0.5% in January, the highest increase since August 2023.
- EY and JPMorgan experts told BIZ Experiences that the Federal Reserve will continue to pause rate cuts at the next Federal Open Market Committee meeting in March.
Inflation is rising at its fastest rate in over a year and a half, causing experts to predict that the Federal Reserve will keep rates steady at next month's Federal Open Market Committee meeting.
New data released from the U.S. Bureau of Labor Statistics on Wednesday showed that the Consumer Price Index (CPI) rose 0.5% in January, the fastest monthly increase since August 2023, according to the New York Times. It was more than the expected gain of 0.3%, with energy prices up 1.1% and food up 0.4%. In comparison, the CPI only rose by 0.4% in December.
Federal Reserve Chair Jerome Powell said on Wednesday that the CPI data reiterated what had been said in past reports: That the Fed was "close but not getting there" on its 2% inflation target. He said that the Fed looks more at longer-term trends than just one or two off-target reports.
EY chief economist Gregory Daco told BIZ Experiences in a statement that core CPI, a measure of the prices of all items not including food and energy, was also "disappointingly hot," or increased rapidly, with a 0.4% monthly increase in January compared to a 0.2% jump in December.
"While CPI inflation has made steady progress toward 2%, it has remained stuck around 3% for a few months," Daco stated.
How Will the CPI Report Impact Rate Cuts?
JPMorgan's head of investment strategy Elyse Ausenbaugh says hot inflation forces the Federal Reserve to reassess when to cut rates this year.
"I continue to trust the Fed's patient and data-dependent approach to deciding when it might be appropriate to make another move," Ausenbaugh told BIZ Experiences in a statement.
EY agrees, with Daco noting that the Fed will take "a wait-and-see approach over the coming months."
Daco expects the Federal Reserve will hold off on cuts at the next Federal Open Market Committee meeting in March and instead make two cuts in 2025, in June and December.
In January, the Fed held rates at a target range of 4.25% to 4.5%. The Fed cut rates in 2024 by 0.5% in September and 0.25% each in November and December.
Overall, consumers paid 3% more for necessities like shelter, gas, and food in January compared to the same time last year, higher than December's 2.9% inflation rate.
The price of eggs grew 15.2% over the month, the biggest increase in the eggs category since June 2015, per the report. The ongoing egg shortage is due to bird flu affecting farms across the country. The core inflation rate hovered at 3.3% year over year, higher than market expectations of 3.1%.
