The News
US inflation unexpectedly rose to 3% in January, bolstering expectations that the Federal Reserve will proceed slowly with interest rate cuts this year.
Consumer prices increased 0.5% from December, beating predictions of a 0.3% rise, according to Consumer Price Index data released Wednesday.
The Bureau of Labour Statistics said the main driver of the advance was the cost of shelter, although energy and grocery prices also contributed.
“Markets are not convinced that we will see disinflation later in the year, and today’s data certainly don’t give evidence of that,” an economist at AllianceBernstein told the Financial Times. Stocks dropped shortly after the inflation data was released, with the Dow Jones Industrial Average and S&P 500 falling 1%.
President Donald Trump vowed on the campaign trail to rapidly reduce prices, but many economists believe his strategy of imposing steep tariffs and pushing for tax cuts could exacerbate inflation rates.
Fed chair Jerome Powell told a Senate committee Tuesday that fiscal policy was already “significantly less restrictive” than in recent years and that further adjustments risked the fight against inflation.
The Fed “already was balking at further rate cuts, and if inflation continues to rise, it may start to consider a rate increase,” said Robert Frick, an economist at the Navy Federal Credit Union.