US inflation data up 0.3 percent in January, will Fed cut interest rates in 2024?

In January, U.S. consumer prices surged more than anticipated, primarily due to escalating costs in shelter and healthcare. Despite this, the trajectory is not likely to alter expectations regarding the Federal Reserve’s plan to commence interest rate cuts in the first half of 2024.

US CPI data continues to rise in Dec

According to the Bureau of Labor Statistics, the consumer price index (CPI) climbed by 0.3% last month, following a 0.2% uptick in December. Annual revisions to the CPI data, released last Friday, depicted a mixed picture but indicated a general downtrend in inflation post the 2022 surge.

Over the twelve months leading to January, the CPI rose by 3.1%, slightly down from December’s 3.4% increase. Economist forecasts anticipated a 0.2% monthly CPI gain and a 2.9% year-on-year rise. This marks a moderation from the peak of 9.1% in June 2022.

Updates to seasonal factors by the Bureau of Labor Statistics played a role in the unexpected CPI strength, mainly in housing shares rising while those of new and used cars lowered, shaping the January CPI data.

Will US Fed cut interest rates in 2024?

Despite expectations of interest rate cuts by the U.S. central bank, policymakers remain cautious. While financial markets project rate cuts beginning in May, some economists lean towards June, considering the tight labor market and persistent services inflation. Policymakers emphasize the necessity for compelling evidence indicating a sustained deceleration in inflation before adjusting borrowing costs.

Risks persist, including potential disruptions in the supply chain due to Red Sea shipping issues and the Panama Canal drought. However, the inflation outlook appears relatively optimistic, especially with expectations of rent increases moderating this year.

Since March 2022, the Federal Reserve has raised its policy rate by 525 basis points, presently ranging between 5.25% to 5.50%.

In latest US CPI news, excluding volatile food and energy components, the CPI rose by 0.4% last month, following a 0.3% increase in December. Factors contributing to this rise include beginning-of-the-year price hikes and the impact on the so-called core CPI.

US inflation data trajectory

Despite the elevated consumer prices, metrics tracked by the U.S. central bank toward its two percent inflation target show notable improvement. The personal consumption expenditures (PCE) price index’s increase slowed to an annualized rate of 1.7% in the fourth quarter, down from 2.6% in the July-September quarter. The core PCE price index held steady at a 2.0% rate, unchanged from the previous quarter.

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