Yesterday’s inflation news from the Consumer Price Index wasn’t what the Federal Reserve and its Chair Jerome Powell wanted to confront. But they had to.
The Consumer Price Index came out. Although not the Personal Consumption Expenses that the central bank prefers, it showed a year-over-year 3% price increase, or 0.5% between December 2024 and January 2025. December’s increase was 2.9%. Core inflation over 12 months was even higher at 3.3%; December was 3.2%.
In his congressional testimony on Tuesday, Powell said, “Inflation has moved much closer to our 2 percent longer-run goal, though it remains somewhat elevated.” Yesterday’s CPI increase was in the wrong direction.
“People can be confident that we’ll continue to keep our heads down, do our work, and make our decisions based on what’s happening in the economy,” Powell said on Wednesday to the House Financial Services Committee, as The Associated Press reported.
Earlier yesterday, President Donald Trump said in a social media post that interest rates should be lowered “hand in hand with upcoming Tariffs.” Concerns from many economists about tariffs have focused on the potential for upward pressure on inflation as import prices would rise and manufacturers would pass them on to consumers and business customers.
“People can be confident that we’ll continue to keep our heads down, do our work, and make our decisions based on what’s happening in the economy,” Powell also said, as AP separately reported.
“The economy is strong, the labor market is solid and we have the luxury of being able to wait and let our restrictive policy work to get inflation coming down again,” Powell added according to Reuters. “And that’s what we’re doing.”
Some experts suggested that the meaning of the CPI was more complex than it seemed. “At first glance, January’s hot inflation report may seem like a sign that we are returning to a stronger inflation environment,” said Gargi Chaudhuri, Chief Investment and Portfolio Strategist, Americas at BlackRock, in emailed remarks. “But it’s important to remember that January often reflects annual resets in price that companies pass through to consumers (e.g. things like your annual streaming subscription). Therefore, it is hard to determine if this is one-time noise or a reflection of a higher inflationary environment.”
The impact of shelter was significant but also more complex than house or apartment prices. “Today’s shelter report was driven by substantial increases in home insurance and in lodging away-from-home – a volatile component that encompasses hotels and travel-related lodging establishments,” Vanguard Senior U.S. Economist Josh Hirt wrote in an emailed note.
And Nationwide Chief Economist Kathy Bostjancic wrote that the increase in consumer prices “supports our view that the Fed will hold rates steady at least through Q3 of this year.”
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