Inflation Gives Fed Less Room For Rate Cuts

According to a Labor Department report on Tuesday, consumer price inflation rose more than experts expected in January. That will leave the Federal Reserve less room to cut interest rates to keep the economy stimulated later this year and pull off a “soft landing” in time for the November election.

Trailing 12-month inflation as measured by the Labor Department’s Consumer Price Index rose 3.1% in January. Last month’s inflation print was down from the 3.4% CPI in December, but still markedly higher than the 2.9% experts forecast. Removing volatile food and energy prices from the mix for the core inflation readout and prices grew 3.9% from a year ago.

“Core CPI for January was higher than expected and keeps a Fed rate cut ‘off the menu’ for now,” Sit Investment Associates Senior Vice President Bryce Doty said. “The real Fed fund rate is still restrictive, but that likely won’t be enough to get the Fed to lower rates until there is more certainty that inflation is fully contained.”

The Federal Reserve has hesitated to cut interest rates because it could cause more inflation faster. “They were right to be patient, because this is the kind of number that is going to cast doubt on whether there really is a lot of deceleration in store for inflation,” said Omair Sharif, founder of Inflation Insights. “This is definitely a spooky number.”

“Inflation is generally moving in the right direction,” said Bright MLS chief economist Lisa Sturtevant. “But it’s important to remember that a lower inflation rate does not mean that prices of most things are falling — rather, it simply means that prices are rising more slowly. Consumers are still feeling the pinch of higher prices for the things they buy most often.”

The latest NBC News national poll of 1,000 registered voters found President Joe Biden trailing behind former President Donald Trump by 20% on their ability to handle the economy. “What is most concerning is the erosion of Biden’s standing against Trump compared to four years ago,” said Democrat pollster Jeff Horwitt of Hart Research Associates.