Dampening hopes for an interest rate cut this spring

By Joe Higgins, Quest for Quality              

The Bureau of Labor Statistics reported on Tuesday that U.S. consumer prices rose more than expected in January. The CPI was up 0.3% over December and up 3.1% over January of last year, 2023. Inflation rose more than expected in January thanks to a jump in grocery and housing costs, underscoring the challenge of taming price pressures within the economy.

Housing costs were the biggest driver of inflation last month. Rent costs rose 0.6% for the month and are up 6.1% from the same time last year. Rising rents are concerning because higher housing costs most directly and acutely affect household budgets.

The report indicates that while inflation has fallen considerably from a peak of 9.1%, it remains above the Federal Reserve’s 2% target. 

The Federal Reserve has signaled it is closely watching these reports for evidence inflation is continuing to subside as policymakers try to determine what comes next for interest rates in 2024. 

The stock market reacted badly, with the Dow Jones immediately dropping 500 points, possibly ending the hope that interest rate cuts would come in May. 

The 10-year Treasury was up this morning by 10 basis points to 4.3%, which means we will probably see a hike in mortgage rates this week.

The only good news in the report was it was down from December’s 3.4% number from last year. The rise in pricing was higher than the consensus forecasts and a disappointment overall. 

Bottom Line: This report, which came in higher than expectations, is a stark reminder of the challenges that the Fed faces in bringing down inflation to its 2 percent target and achieving the soft landing we are all hoping for.

Joe Higgins is a 44-year veteran of GE and Whirlpool Corp. who brings his executive experience to bear as a business consultant, AVB keynoter and YSN contributor. Visit his website, Quest 4 Quality with Joe, at Q4QwithJoe.com.

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