Inflation Rises in January, Delaying Rate Cuts

U.S. inflation picked up in January as prices for groceries, gas, and used cars climbed, complicating the Federal Reserve’s plans for interest rate cuts.

The consumer price index (CPI) rose 3% year-over-year, up from 2.9% in December, according to the Labor Department. Core inflation, which excludes food and energy, increased to 3.3%, signaling persistent price pressures.

On a monthly basis, inflation jumped 0.5%—the highest increase since August 2023—while core prices rose 0.4%, the biggest gain since March 2024. These figures suggest that price pressures remain stubborn despite the Fed’s aggressive rate hikes in 2022 and 2023.

Federal Reserve Chair Jerome Powell, set to testify before Congress, has signaled a cautious approach to rate cuts, saying, “we do not need to be in a hurry.” The Fed previously raised rates to a two-decade high of 5.3% before gradually cutting them to 4.3% by the end of last year.

Former President Donald Trump has called for lower interest rates alongside his proposed tariffs, but economists warn tariffs could drive inflation higher. Trump recently imposed 25% tariffs on steel and aluminum and plans additional measures that could push core inflation to 2.8% by year-end, up from Goldman Sachs’ projected 2.3% without tariffs.

Powell acknowledged that tariffs could influence inflation but noted the impact depends on the scale and duration of the measures. As inflation remains elevated, the Fed is likely to keep rates steady for now.