The Labor Department’s latest inflation numbers beat expectations on Tuesday, raising concerns on Wall Street that the U.S. Federal Reserve will not cut interest rates sooner or more often this year than previously expected. Stock prices fell.
According to the Consumer Price Index (CPI) released on Tuesday, prices rose 0.3% from December to January, up 3.1% from a year earlier.
Economists polled by the Wall Street Journal had predicted an annualized growth rate of 0.2%, or 2.9% for the year.
The Dow Jones Industrial Average was down nearly 450 points, or nearly 1.2%, as of midday Tuesday after the release of the new data. The S&P 500 fell nearly 1.2%, and the Nasdaq fell 1.4%.
“This morning’s consumer price index was slightly higher than expected, but it shows continued modest progress in the fight against inflation,” said Julia Pollack, chief economist at ZipRecruiter.
“The main culprit was housing costs, which rose 0.6% in January and contributed more than two-thirds of overall inflation in the month. Prices have not fallen because inventory is so low.”
Overall, the economy is in much better shape than it was two years ago, just before the Fed began its interest rate hike drive to rein in rampant inflation. Inflation has fallen from a peak of 9% in the summer of 2022, but has not yet fallen to the central bank’s target of 2%.
The Fed signaled in December that it would cut interest rates by the end of the year, but did not specify when. But as the 2024 election heats up, the politically independent central bank is increasingly becoming the target of partisan attacks.
Some Democrats have called on Federal Reserve Chairman Jerome Powell to cut interest rates, arguing that it is exacerbating the U.S. housing price crisis.
Former President Trump, a front-runner for the Republican presidential nomination, accused Powell, a lifelong Republican and Trump appointee, of being “political.” He also suggested that Powell may consider lowering rates to help Democrats during the upcoming election.
Trump currently leads President Biden in polls on economic issues, which are expected to play a key role in the first post-pandemic election. A recent Financial Times poll showed Trump leading Biden by 11 points when it comes to who voters think can handle the economy better.
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