US inflation rose to 3% in January, and the Federal Reserve stepped up its lawsuit to extend its suspension of interest rate cuts.
The consumer price index jumped higher than expected, with data from the Labor Bureau of Statistics Office shown Wednesday, up 0.5%, the fastest monthly increase since December to August 2023. Last month, the annual pace was 2.9%.
The “Core” CPI more closely reflects underlying inflation by removing the prices of volatile food and energy, but showed little improvement. It has risen 0.4% or 3.3% year-on-year since December, but both are higher than economists had expected. The monthly rise in core prices was the highest since April 2023.
January data highlighted the uneven nature of central bank battles against high prices. Inflation has subsided dramatically since just over 9% in 2022, but progress has been far more sporadic over the past few months.
Austan Ghoolsby, president of the Federal Reserve Bank of Chicago, described the latest inflation report as “satisfied.”
Ghoolsby, who officially voted for policy decisions this year, reads a lot of inflation reports, especially as he realized that seasonal habits were typical, following two months of “encouragement” development. He said he didn't want to. January data. However, he made it clear that it is an unwelcome development.
“If you spend months like these, the work is clearly not finished,” he said in an interview.
Last month, rising prices in sectors where consumers are closely monitored by consumers, from groceries to gasoline, offsetting declines in other categories such as clothing and furniture.
Grocery prices rose 0.5% or 1.9% per year compared to the previous month. This has been driven largely by a nationwide egg shortage caused by avian flu or avian flu outbreaks that have increased prices by 15.2% in the past four weeks. Egg prices have risen 53% since last year. This is the biggest rise in egg prices since June 2015, accounting for about two-thirds of total grocery prices since December.
Petrol prices also rose 1.8% over the month, but fell 0.2% compared to the same period last year. Other categories that should increase were airline fares and hotel rates. Used cars, trucks and car insurance have risen, up about 2% since December. The economists said they don't expect many of these items to continue rising, but suggests that the January pace may not be maintained.
Economists have carefully looked at further improvements in housing-related costs. This is a slowdown that began to appear in data at the end of last year. That progress stagnated in January, with shelter prices rising 0.4% in a month and 4.4% year-on-year.
Jonathan Wright, a former Fed economist at Johns Hopkins University, said the latest data “squeezes about 3% of inflation, making the final percentage point extremely difficult to achieve.” It refers to the Fed's 2% target. He said the rise in rates from the central bank is “at least likely” as likely as rate cuts in the near future.
Price pressure continues at a time of significant uncertainty about the economic outlook, only a few weeks after President Trump's second term in the White House. Taxes, deportation, tax cuts and deregulation are expected to have economic impacts, but the final policy mix is ​​due to the risk of revival inflation or an unexpected slowdown in growth. Decide whether to pay a lot of heart or not.
“The risk is to curb higher inflation and growth,” said Alan Detmeister, former Fed economist at UBS, who was Trump's proposal. Much will depend on what is actually going on, he added, saying the economic outlook is “very uncertain.”
Republicans have held the Biden administration responsible for recent price increases. Missouri leader Jason Smith, who heads the House of Representatives' Avenue and Means Committee, said the former president “cannot lower prices, leaving behind a disruption in the inflation that President Trump is cleaning up.” .
In a social media post after the report was released, Trump himself said, “Biden's inflation is rising!” It followed another mission earlier in the day, when he called for a lower interest rate, which he “will go hand in hand with future tariffs!!!”
However, the Fed has shown most of the urgency to lower the rate for the time being, with the president who showed he was ready to criticize when the central bank resisted demands for cuts in his first term. A potential conflict has been set up. After a 1% point equivalent cut in the last three months of last year, the rate is currently hovering between 4.25% and 4.5%.
In an interview, Goolsbee said he hopes that interest rates will resolve “a significant downwards where we are today,” but further cuts will include “the road to 2% inflation.” “We need confidence that we are walking.”
For at least for a long time, households and businesses do not appear to have lost faith that inflation will eventually drop. What Ghoulsby said was, “Because the world sees this as a permanent change, not a permanent change. A sign of an expanded overheating of the economy.”
He expressed concern that Trump's policies would make the Fed's work even more difficult in terms of extracting signals from incoming data. For example, central bank policy responses may appear different when price pressures are driven by supply shocks related to policies such as tariffs, as opposed to strong consumer demand.
“We're going to be an unpleasant situation where we look at the factors of price increases and try to distinguish between what we should see and what comes from what the signs of overheating are,” Ghoolsby said. .
Speaking to House lawmakers on Wednesday, Fed Chairman Jerome H. Powell said, “We're close, but we're not inflation.”
Powell said that there have been “great progress” in defeating inflation, but “we're not there yet, so we want to continue to restrict our policies.”
During the two-day hearing that began Tuesday, his main message to lawmakers is that there is no urgency to cut interest rates. Central bank officials have suggested in recent weeks that as long as the labour market is solid, they should see more substantial advances in inflation before they can re-push their policy lever.
In a speech Tuesday, Federal Reserve Bank of New York Chairman John Williams said he hopes it will be realized towards a 2% inflation target, but “it takes time to achieve its sustained target.” It said it will take some time. Basics.
After the inflation report, traders in the federal fund futures market have reduced their bets on when the Fed will lower interest rates, pushing back the timing from September to December. The worse than expected data has seen US stocks and government bonds fall.
