Inflation came in higher than expected

If the economy was a dinner party, inflation is the one guest that – despite frequent cues to leave – sticks around long after everyone else has left.

January’s CPI was released yesterday. The numbers:

• Inflation rose a seasonally adjusted 0.5% for the month, putting the annual inflation rate at 3% (vs. 2.9% in December), both higher than expected.
• The core CPI, which excludes often-volatile food and energy categories, came in at 0.4% (its largest monthly increase in nearly two years) and 3.3% respectively – also above forecast.

Areas on the rise: Housing, prescription drugs, energy, car insurance, used vehicles, and groceries – largely driven by egg prices, which have risen 15% over the past four weeks (their largest monthly increase since June 2015) and 53% over the past year.

Looking ahead: Markets now expect the Fed’s policy handbook for most of 2025 to read: “Just chillin’ bro.” Traders are only pricing in one quarter-point rate cut this year, vs. two before the CPI was released.

Fed Chair Jerome Powell indicated as much in congressional testimony this week, saying: “We are close, but not there on inflation…. So we want to keep policy restrictive for now.”

🖐️ But…Powell also said it’s possible new Trump admin policies could prompt the central bank to alter interest rates, pointing to potential changes on tariffs, immigration, fiscal policy, and regulation.