(Reuters) -The U.S. consumer price index increased more than expected in January, reinforcing the Federal Reserve’s message that it was in no rush to resume cutting interest rates amid growing uncertainty over the economy.
The CPI jumped 0.5% last month after gaining 0.4% in December, the Labor said on Wednesday. In the 12 months through January, it increased 3.0% after advancing 2.9% in December.
Economists polled by Reuters had forecast the CPI gaining 0.3% and rising 2.9% year-on-year.
Fed funds futures show traders do not expect another Fed ease until at least September, having shown before the report expectations for a 25 basis point cut in June.
MARKET REACTION:
STOCKS: U.S. stock index futures turned 0.9% lower, pointing to a weak open on Wall Street
BONDS: The 10-year U.S. Treasury yield rose to 4.631%, while the two-year yield jumped to 4.37%FOREX: The dollar index extended to 0.43% higher, and the euro fell 0.3%
COMMENTS:
BEN VASKE, SENIOR INVESTMENT STRATEGIST, ORION, OMAHA, NEBRASKA
“Inflation has boiled back to the top of headlines as market and sentiment-based inflation expectations have been on the rise. This morning’s report gave those expectations merit, with the MoM CPI reading ticking up once again, this month by 0.5%, and YoY CPI growth back to a 3-handle. The path forward for Powell and the Fed is getting murkier as investors are likely to continue questioning the rapid initial pace of rate cuts in Q4 and the economy grapples with tariff implications going forward.”
GENE GOLDMAN, CHIEF INVESTMENT OFFICER AT CETERA INVESTMENT MANAGEMENT, EL SEGUNDO, CA
“Today’s number came in much hotter than expected. This further affirms that the Fed won’t be cutting rates any time soon.”
“This news is consistent with what Powell and all the other Fed speakers said yesterday, that we need to see lower inflation in order to cut rates.”
“PPI comes out tomorrow and PPI is much more important than CPI because PPI should reflect should reflect producers going in and purchasing items in advance of the tariffs.”
“Bond yield are higher. Futures are down and the dollar is higher. All this things suggest the Fed isn’t likely to cut rates any time soon.”
ADAM BUTTON, CHIEF CURRENCY ANALYST, FOREXLIVE, TORONTO
“It’s very straightforward. The dollar is hot, responding to a higher CPI report, we’ve priced out about 10 basis points for this year. We’re down to one cut priced in for all of the year. A lot of people were flagging the potential for a hot January reading, including us. This is the fourth year in a row with a surprisingly hot January reading. There are many types of price increases that occur at year end in sticky and non-services inflation categories that economists have been struggling to forecast. I guess probably the takeaway is no matter what the reason was for the upside surprise, the Fed has been very clear that it won’t cut rates until inflation is close to 2%. So, whether it’s one-offs due to eggs or the fire in California, the prospect of hitting 2% inflation this year when we start the year with 0.5%, is greatly diminished.”
