Evelyn Reynolds

A Fed interest rate cut won’t be coming until at least September, if at all this year, following a troubling inflation report Wednesday.
Chair Jerome Powell, in an appearance before the House Financial Services Committee, insisted the Fed had made “great progress” on inflation from its cycle peak “but we’re not quite there yet.”

Cartons of eggs are displayed at a grocery store with a warning that limits will be placed on purchases as bird flu continues to affect the egg industry on Feb. 10, 2025 in New York City. 
Spencer Platt | Getty Images

A Federal Reserve interest rate cut won’t be coming until at least September, if at all this year, following a troubling inflation report Wednesday, according to updated market pricing.
Futures markets shifted from the expectation of a June cut and possibly another before the end of the year to no moves until the fall, with a minimal chance of a follow-up before the end of 2025.

“The Fed will see January’s hot inflation print as confirmation that price pressures continue to bubble beneath the economy’s surface,” Bill Adams, chief economist at Comerica, wrote in commentary that echoed others around Wall Street. “That will reinforce the Fed’s inclination to at least slow and possibly even end rate cuts in 2025.”
Reduced optimism for Fed easing came after the January consumer price index report showed a 0.5% monthly gain, pushing the annual inflation rate to 3%, a touch higher than December and only slightly lower than the 3.1% reading in January 2024. Excluding food and energy, the news was even worse, with a 3.3% rate that showed core inflation, which the Fed tends to rely on more, also rising and holding well above the central bank’s goal.
Fed Chair Jerome Powell, in an appearance Wednesday before the House Financial Services Committee, insisted the central bank had made “great progress” on inflation from its cycle peak “but we’re not quite there yet. So we want to keep policy restrictive for now.”

U.S. Federal Reserve Chair Jerome Powell testifies before a House Financial Services Committee hearing on “The Semiannual Monetary Policy Report to the Congress,” on Capitol Hill in Washington, D.C., U.S., February 12, 2025. 
Nathan Howard | Reuters

As the Fed targets 2% inflation and the report showed no recent progress, it also dimmed hopes that the central bank will view further policy easing as appropriate after it lopped a full percentage point off its benchmark short-term borrowing rate in 2024.
Fed funds futures trading pointed to just a 2.5% chance of a March cut; only 13.2% in May, up to 22.8% in June, then 41.2% in July and finally up to 55.9% in September, according to the CME Group’s FedWatch gauge as of late Wednesday morning. However, that would leave the probability still up in the air until October, when futures contracts pricing implies a 62.1% probability.

Odds of a second cut by the end of 2025 were at just 31.3%, with pricing not indicating another reduction until late 2026. The fed funds rate is currently targeted in a range between 4.25%-4.5%.
The issues raised in the CPI report are not happening in isolation. Policymakers also are watching White House trade policy, with President Donald Trump pushing aggressive tariffs that also could boost prices and complicate the Fed’s desire to get to its goal.
“There is no getting away from the fact that this is a hot report and with the sense that potential tariffs run upside risk for inflation the market is understandably of the view the Federal Reserve is going to find it challenging to justify rate cuts in the near future,” said James Knightley, chief international economist at ING.
While the Fed pays attention to the CPI and other similar price measures, its preferred inflation gauge is the personal consumption expenditures price index, which the Bureau of Economic Analysis will release later in February. Elements from the CPI filter into the PCE reading, and Citigroup said it expects to see core PCE fall to 2.6% for January, a 0.2 percentage point decline from December.

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A new car would cost about $5,790 more if President Donald Trump’s plans for 25% tariffs on Mexico and Canada go into effect, according to an estimate from Benchmark.
Benchmark found that more than 22% of finished cars and about 40% of auto parts come to America from the two trading partners.
The auto industry is among the “most exposed” to the risk of higher tariffs, the investment bank said.

In an aerial view, Chevrolet cars and trucks are on display at Novato Chevrolet on Jan. 28, 2025 in Novato, California.
Justin Sullivan | Getty Images

Americans shopping for cars may need to fork over thousands more if President Donald Trump’s proposed tariffs go into effect, according to data from investment bank Benchmark Co.
Analyst Cody Acree estimated that the average sticker price would rise about $5,790, based on the impact of the currently paused 25% levies on cars and components from Mexico and Canada. That would raise the cost of an average new car above $54,500, or nearly 12% higher than in 2024.

“We believe the Auto sector is the most exposed to the risks of increased tariffs,” Acree wrote in a note to clients, “given its sheer size of trade dollars, the complexity of the intertwined supply and manufacturing channel that has been cultivated over decades, and the sheer number of our companies that participate in support of this key consumer industry.”
Trump slapped 25% tariffs on Canada and Mexico at the start of February, briefly rocking markets, but later suspended the duties for one month after reaching tentative agreements with Prime Minister Justin Trudeau and President Claudia Sheinbaum.
Now, consumers and investors alike wonder what form tariffs will take, or if they’ll go into effect at all. Benchmark calculated what 25% levies would mean for the average American’s buying power on a popular big-ticket purchase.
Benchmark’s estimated higher costs for a car is based on more than 22% of finished automobiles sold in the U.S. coming from Mexico and Canada last year. On top of that, the firm said about 40% of parts used in vehicles also come to America from its North American partners.
That amounts to more than $200 billion worth of exports to America last year. Specifically, Acree found that Mexico supplied $95 billion in completed cars to the U.S., in addition to $68 billion in parts in 2024. Canada provided more than $36 billion worth of finished cars and nearly $16 billion in components.

During an industry event this week, Ford Motor CEO Jim Farley said Trump’s proposed tariffs on Canada and Mexico, combined with 25% fees on steel and aluminum imports, have created headaches.
“President Trump has talked a lot about making our U.S. auto industry stronger, bringing more production here, more innovation in the U.S., and if his administration can achieve that, it would be one of … the most signature accomplishments,” Farley said during a Wolfe Research investment conference. “So far what we’re seeing is a lot of cost, and a lot of chaos.”
— CNBC’s Michael Wayland contributed to this report. More

The CPI accelerated a seasonally adjusted 0.5% for the month, putting the annual inflation rate at 3%, both higher than expected. The core CPI ran at 0.4% and 3.3% respectively, also above forecast.
Shelter costs continued to be a problem for inflation, rising 0.4% on the month. Food prices jumped 0.4% and energy prices climbed 1.1% as gasoline prices increased 1.8%.
Markets largely expect the Fed to stay on hold for an extended time and pushed the next rate cut probability out to September following the CPI report.

Inflation perked up more than anticipated in January, providing further incentive for the Federal Reserve to hold the line on interest rates.
The consumer price index, a broad measure of costs in goods and services across the U.S. economy, accelerated a seasonally adjusted 0.5% for the month, putting the annual inflation rate at 3%, the Bureau of Labor Statistics reported Wednesday. They were higher than the respective Dow Jones estimates for 0.3% and 2.9%. The annual rate was 0.1 percentage point higher than December.

Excluding volatile food and energy prices, the CPI rose 0.4% on the month, putting the 12-month inflation rate at 3.3%. That compared with respective estimates for 0.3% and 3.1%. The annual core rate also was up 0.1 percentage point from December.

Markets tumbled following the news, with futures tied to the Dow Jones Industrial Average sliding more than 400 points while bond yields scaled sharply higher.
“The ‘wait and see’ Fed is going to be waiting longer than anticipated after a red-hot January CPI inflation report,” wrote Josh Jamner, investment strategy analyst at ClearBridge Investments. “This report puts the final nail in the coffin for the rate cut cycle, which we believe is over.”
Indeed, market pricing shifted the outlook for the next rate cut to at least September, even as Fed Chair Jerome Powell said he would offer “a note of caution” about reading too much into the CPI report.
“We don’t get excited about one or two good readings and we don’t get excited about one or two bad readings,” Powell said in testimony before the House Financial Services Committee. He added that the Fed more closely adheres to the Commerce Department’s personal consumption expenditures prices gauge, which will get more clarity following Thursday’s producer price index report from the BLS.

Shelter costs continued to be a problem for inflation, rising 0.4% on the month and accounting for about 30% of the entire increase, the BLS said. Within the category, a metric in which homeowners estimate what they could get if they rented their homes increased 0.3% on the month and was up 4.6% on an annual basis.

“Shelter costs continue to be the main driver of core inflation as higher mortgage rates push more Americans into a rental market in which vacancy rates are near record lows,” said Erik Norland, chief economist at CME Group. “Traders appear to believe that today’s data make additional Fed cuts less likely than they had expected previously.”
Food prices jumped 0.4%, pushed by a 15.2% surge in egg prices related to ongoing problems with avian bird flu that have forced farmers to destroy millions of chickens. The bureau said it was the largest increase in egg prices since June 2015 and it was responsible for about two-thirds of the rise in food-at-home prices. Egg prices have soared 53% over the past year.
Nonalcoholic beverages posted a 2.2% gain over the past 12 months, while in January tomatoes fell 2% and other fresh vegetables declined 2.6%.
New vehicle prices were flat, but used cars and trucks saw a 2.2% increase and motor vehicle insurance was up 2%, pushing the annual gain to 11.8%. Energy prices climbed 1.1% as gasoline prices rose 1.8%.
The report comes a day after Powell indicated the central bank could be on hold for a while when it comes to interest rates. Powell told members of the Senate Banking Committee that he thinks the Fed doesn’t need to be in a rush to lower rates as it evaluates progress on inflation and as President Donald Trump continues plans to levy tariffs against imports.
Markets largely expect the Fed to stay on hold for an extended time and pushed the next rate cut probability out to September following the CPI report, according to CME Group data. Traders also implied about a 70% probability that the Fed will cut only once this year.
Trump, though, is still pushing for lower rates. In a post on Truth Social about half an hour before the CPI release, the president said, “Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!!”
The CPI release, though, could complicate further easing in monetary policy.
The jump in prices ate into worker paychecks, as the CPI increase entirely offset the 0.5% move higher in average hourly earnings, the BLS said in a separate release.
Correction: Josh Jamner is an investment strategy analyst at ClearBridge Investments. An earlier version misspelled his name.

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The outlook for the January CPI calls for a monthly increase of 0.3% for the all-items index and a 12-month inflation rate of 2.9%. Core readings are projected at 0.3% and 3.1%, respectively.
Things only get more complicated from here as President Donald Trump’s tariffs could act as an inflationary counterweight to an otherwise disinflationary trend.

Cartons of eggs are displayed at a grocery store with a warning that limits will be placed on purchases as bird flu continues to affect the egg industry on Feb. 10, 2025 in New York City.
Spencer Platt | Getty Images

The January consumer price index report is likely to tell a familiar story: another month, another expected miss for inflation as it relates to the Federal Reserve’s goal, with concerns aplenty about what happens from here.
So instead of looking for hope from the headline readings, which aren’t expected to change much from December, markets will pore through the details for trends that could shed some hope that the Fed eventually will be able to start lowering rates again.

“Inflation is stuck above target, with risks skewed to the upside, activity is strong, and the labor market appears to have stabilized around full employment,” Bank of America economist Stephen Juneau said in a note. “If our January CPI forecast is correct, the case for the Fed to stay on hold will strengthen further.”
Bank of America is one of the most pessimistic voices on Wall Street in terms of expecting further Fed easing.
In fact, the bank’s economists believe the Fed will stay on hold for the rest of the year — and beyond — as inflation holds higher, the labor market remains strong and the economy generally stays out of the kind of trouble that would necessitate rate cuts. Traders otherwise figure the Fed to approve a quarter percentage point reduction in July and then stay put, according to CME Group data.
More immediately, Bank of America’s forecast pretty much meshes with the Dow Jones outlook for January CPI: a monthly increase of 0.3% for the all-items index and a 12-month inflation rate of 2.9%, the latter the same as December. Excluding food and energy, the respective core readings are projected at 0.3% and 3.1%, the annual mark just a notch down from the 3.2% reading in December.
From a details standpoint, increases are likely to be driven by rises in car prices and auto insurance as well as communications, according to Goldman Sachs. The firm expects only moderate downward pressure from airfares and, importantly, the rent-related categories that make up about one-third of the CPI weighting and have been largely responsible for inflation holding above the Fed’s 2% goal.

Things only get more complicated from here.

Optimism despite tariff concerns

While economists expect a good share of disinflation from some key categories, President Donald Trump’s tariffs could act as an inflationary counterweight.
“Going forward, we see further disinflation in the pipeline over the next year from rebalancing in the auto, housing rental, and labor markets, but an offset from an escalation in tariff policy,” Goldman economists said in a note.
There’s been some good news lately, though. While the University of Michigan’s consumer survey showed a surprising bump in inflation expectations, other measures indicate the outlook is actually softening.
The National Federation of Independent Business survey for January showed that just 18% of the small business gauge reported inflation as being their biggest issue, the lowest level since November 2021. Also, the Cleveland Fed’s first-quarter Survey of Firms’ Inflation Expectations showed that CEOs and other top executives see CPI to run at a 3.2% rate over the next 12 months. While that’s well above the 2% standard, it is a sharp drop from the 3.8% in the fourth quarter.
Amid the conflicting information, the Fed is expected to stay put.
Fed Chair Jerome Powell on Tuesday said the central bank is in no rush to cut rates further, while Cleveland Fed President Beth Hammack noted the persistence of inflation that could be exacerbated by tariffs as reason to stay put.
“While monetary policy needs to be forward-looking in nature, forecasts are no substitute for realizations. Or as they might have put it in Jerry Maguire, ‘show me the low inflation,'” Hammack said. More

Ursula von der Leyen (CDU, r), President of the European Commission, stands in the plenary chamber of the European Parliament.
Philipp von Ditfurth | Picture Alliance | Getty Images

The European Union plans to retaliate against the United States for new steel and aluminum tariffs, adding another element to rising global trade tensions.
“Unjustified tariffs on the EU will not go unanswered — they will trigger firm and proportionate countermeasures,” European Commission President Ursula von der Leyen said in a statement late Monday.

The statement comes after U.S. President Donald Trump signed an executive order to impose 25% tariffs on steel and aluminum. Shares of American steelmakers rallied sharply on Monday following the order.
Tariffs are effectively a tax paid to import a good into a country. The latest tariffs could raise the price of foreign steel, and thereby help to support U.S. steel producers at the expense of international competitors. Von der Leyen called tariffs “bad for business, worse for consumers.”
Trump has taken an aggressive approach with tariffs early in his second tenure in the White House. He has already ordered tariffs on China, Canada and Mexico. The Canada and Mexico tariffs have since been delayed one month.
Europe is not alone in pushing back against the U.S. tariffs. Last week, China announced new levies against select U.S. imports.
Reuters has reported that von der Leyen is scheduled to meet U.S. Vice President JD Vance on Tuesday.
The rising trade tensions come at a time when inflation, both in the U.S. and globally, has yet to completely return to pre-pandemic levels. Some economists warn that tariffs could be passed on to consumers in the form of higher prices, which would push up inflation.

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