Inflation Uptick Likely Signals the end of Fed Interest Rate Cuts

(KNSI) – The two most popular measures of inflation both came in above expectations this week.

The January Consumer Price Index grew at 3% compared to the same month last year, an acceleration from 2.4% in September. The Producer Price Index was approximately the same. Both remain above the Federal Reserve’s target rate.

St. Cloud State University Economist King Banaian expects the numbers to end the central bank’s recent string of interest rate cuts. “The market seems to be expecting now only one reduction in the Fed Funds rate for 2025. I wouldn’t be surprised if there were no cuts.”

Banaian further points to Federal Reserve Chairman Jerome Powell’s testimony before Congress this week. Powell promised a rate cut pause over the next several months.

Banaian believes President Donald Trump’s team will try to tackle the issue through a two-pronged approach. “I think the view of this administration has been that there are two policy tools they can use to reduce inflation. One of them being further production of energy products, and the other being deregulation.”

Trump’s first term was characterized by historically low inflation, but it was easier to tackle. Core CPI was reasonable during the Obama years. It was oil prices that were stubbornly high. Now, Trump inherits rising prices on goods and services even with gasoline prices kept in check. Since inauguration day, the administration has mostly focused on eliminating waste inside the federal government.

___