CPI inflation shock hammers Fed rate cut bets for 2025

January's inflation revival comes ahead of anticipated price hikes tied to new tariffs

Feb 12, 2025 - 15:00

CPI inflation shock hammers Fed rate cut bets for 2025

Updated at 8:53 AM EST

U.S. consumer inflation ticked surprisingly higher in January, data indicated Monday, sending stocks sharply lower as price pressures stayed stubbornly elevated even before the impact of new trade tariffs put in place by President Donald Trump.

The Commerce Department said its headline Consumer Price Index for January was pegged at an annual rate of 3%, accelerating from the 2.9% pace recorded in December and the fastest level since May.

On a monthly basis, price pressures edged 0.5% higher, faster than the December advance of 0.4%, thanks in part to an 1.8% increase in domestic gasoline prices. It was the highest rate since June.

Egg prices, meanwhile, surged 15.2%, notching the biggest month-on-month gain in at least ten years.

So-called core inflation, which strips out volatile components like food and energy, quickened to an annual rate of 3.3%, topping Wall Street's 3.1% forecast and pegged at the highest rate since May.

The monthly core reading of 0.4% was also faster than Wall Street forecasts and matched the final November reading of 0.3%.

Fed Chair Jerome Powell told lawmakers on Capitol Hill Tuesday that the central bank is in 'no hurry' to lower its benchmark borrowing rate.
Tom Williams/Getty Images

"With this very strong CPI print, the Federal Reserve is on hold when it comes to interest rates for at least the remainder of 2025," said Skyler Weinand, chief investment officer at Regan Capital in Dallas.

"The Fed has nothing to do at this point but wait and see, and hope that the economic indicators change to suggest more progress on inflation," he added. "If consumer prices or inflation expectations rise any further, it is quite possible that the Fed’s next move is to raise short term interest rates."

TRUMP: INTEREST RATES SHOULD BE LOWERED, WOULD GO HAND IN HAND WITH UPCOMING TARIFFS pic.twitter.com/NausYusyDh— Wall St Engine (@wallstengine) February 12, 2025

U.S. stocks extended declines following the data release, with futures contracts tied to the S&P 500 indicating a 58 point decline and those linked to the Nasdaq priced for a 220 point slide. The Dow industrials were last called 390 points lower.

Benchmark 2-year Treasury note yields rose 7 basis points to 4.367% while 10-year notes jumped 8 basis points to 4.629%.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.5% higher at 108.441

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CME Group's FedWatch, meanwhile, continues to suggest traders aren't expecting a rate cut from the central bank until at least June, and possibly September, and have pared bets on a second cut before the end of the year to around 38%.