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US inflation suddenly increased to 3 percent in January, strengthening the issue for the federal reserve by slowly continuing with lowering interest rates and hitting shares and government bonds.
The figure of the Wednesday’s Consumer Price Index exceeded the expectations of economists surveyed by Reuters, who predicted that inflation would keep its December 2.9 percent stable.
The growth of the month per month for January was also ahead of expectations, at 0.5 percent compared to a 0.3 percent projected.
Increasing eggshemes contributed greatly to increased, increasing 15.2 percent during the month and 53 percent per year, partly due to the influence of bird flu.
Figures from the Bureau of Labor Statistics make investors bet that the FED would lower interest rates once this year. Before the data was published, the future market had expected the first cut to reach September, with a chance of 40 percent for a second decrease by the end of the year.
“I would say we are close, but not there (still) for inflation,” Fed President Jay Powell told lawmakers on Wednesday. “Today’s inflation suppression says the same.”
Powell told the hearing in the House of Representatives after the data were published: “We have made great progress, but we are not there yet. So we want to keep the limiting policy right now.”
“The markets are not convinced that we will see disinflation later during the year, and today’s data certainly do not provide evidence,” said Eric Winograd, the economist chief at Alliancebernstein. He stressed concerns that “if inflation does not continue to fall down, the Fed will not lower the rates at all.”
After the data were published, the two-year yield in the US Treasury bills, which traces interest rate expectations and moves in the opposite way, increased by 0.07 percentage points to almost 4.36 percent.
S&P 500 dropped up to 1.1 percent shortly after the Wall Street opening bell, but eventually closed 0.3 percent lower. Severe nasdaq composite closed with a higher portion, while a dollar gauge against the other six coins was marginally lower.
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Wednesday’s inflation also showed the essential CPI, which removes changes in food and energy prices, increased to 3.3 percent in January from 3.2 percent in December.
It came after the Fed opposed calls from President Donald Trump to make steep landing on borrowing costs and instead maintained its main rate at 4.25 percent to 4.5 percent.
On Tuesday, Powell told Congress that the Central Bank will continue to “do our job and stay out of politics”.
But on Wednesday Trump renewed his demands on his social platform of truth. “Interest rates have to sit, something that would go in parallel with future tariffs !!!” The US president posted. “Lets Rock and Roll, America !!!”
IIK data will foster concern among economists that the world’s largest economy is being heated again, as Trump moves forward with plans for comprehensive tariffs, an immigration blow and extensive tax cuts that many economists fear it may cause a new increase in inflation.
Since returning to the White House on January 20, Trump has begun implementing the massive expulsions of undocumented immigrants and imposed 10 percent additional tariffs on Chinese imports.
He has also announced that high taxes on almost all imports from Canada and Mexico, as well as all imports of steel and aluminum, would come into force in March.
Powell has said it is still too early to judge the impact of tariffs on the economy and monetary policy, as it will depend on tax details.
Whitney Watson at Goldman Sachs Asset Management said that, along with the strong state of the US job market, Wednesday inflation figures were likely to strengthen the “Careful Fed’s Access”. She added: “We think the Fed is likely to remain in the ‘Reception and View Mode’ for the moment.”
Despite acknowledging that IIK’s reading “was above almost every prediction”, Powell offered some careful notes on Wednesday.
“One is that we are not excited for one or two good readings and do not harass from bad readings. The second thing is that we aim for PCE inflation because we think it’s just a better measure of inflation,” He said at the hearing, referring to the personal consumer expense index.
Powell said the Fed will take a better sense of price pressures when the manufacturer’s price index came out on Thursday.
