On Tuesday afternoon, Federal Reserve Chair Jerome Powell told members of Congress that, “We do not need to be in a hurry to adjust our policy stance.”
Turns out that the salt-and-pepper son of a gun was right.
The Bureau of Labor Statistics revealed the latest CPI reading today:
- Consumer prices jumped 3% year over year in January, higher than the 2.9% expected and up from December’s annual CPI reading of 2.9%.
- CPI rose 0.5% month over month, above forecasts of 0.3% and up from December’s 0.4% increase.
- Core CPI, which measures prices excluding food and energy, rose 0.4% from December, and 3.3% year over year—both higher figures than expected.
- The bird flu drove grocery prices up 0.5% over the month and 1.9% year over year. Egg prices, in particular, are out of control, up 15% over just the past month.
- There was a sliver of good news: Rent price inflation began to cool. Shelter inflation only rose 4.4% over the past 12 months, the smallest gain in three years.
Markets sank in reaction to the report. “No matter how you slice the data, the January print marks an unwelcome re-acceleration in prices to start off 2025,” wrote Jason Pride, chief of investment strategy at Glenmede, in a note this morning.
Back to square one
Inflation’s persistent grip on the economy complicates the Federal Reserve’s plan for a soft landing.
When the central bank cut rates for the first time in four years in September, investors celebrated what they thought was the beginning of a new, lower-rate era. But it turns out they were getting ahead of themselves.
Making sense of market moves
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“The Fed will see January’s hot inflation print as confirmation that price pressures continue to bubble beneath the economy’s surface,” explained Chief Economist for Comerica Bank Bill Adams. “That will reinforce the Fed’s inclination to at least slow and possibly even end rate cuts in 2025.”
The Fed kept interest rates at its target of between 4.25% and 4.5% following its most recent FOMC meeting at the end of last month, and now the market is giving a roughly 98% chance that rates will remain the same following the next meeting in March.
But while Powell spent today testifying to Congress that he is no rush to slash rates, just across the Capital, President Trump was firing off a series of Truth Social posts. “Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!!” he wrote, after declaring “BIDEN INFLATION UP!”
This isn’t the first time Trump has suggested he should have some say over the Fed’s policymaking, worrying economists.
How to invest: “With potential for more volatility in rates across the curve, it’s worth considering a fixed income approach that is actively managed and has the flexibility to ‘go anywhere’ in the opportunity set,” wrote Head of Investment Strategy at JPMorgan Wealth Management Elyse Ausenbaugh. “We have also been focused on complementing fixed income exposures with other diversifiers, like gold, or alternative sources of income generation, like real estate.”—LB