New economic data released on Wednesday painted a picture nobody wants to see: inflation rose more than expected last month, reducing the chances that the Federal Reserve will continue cutting interest rates anytime soon.
U.S. inflation accelerated as the cost of groceries, gasoline and rents climbed higher, disappointing families and businesses already struggling with rising expenses.
The latest Consumer Price Index report showed that U.S. inflation increased more than expected to 3.0% in January. Analysts had predicted prices to rise at the same pace they did in December — 2.9%. Instead, inflation returned to where it was seven months ago.
Core inflation, which was expected to drop to 3.1%, instead edged up to 3.3%.
Markets reacted swiftly: Dow Jones slid more than 300 points as jittery investors rushed to shed risk. Bitcoin, a prime example of risk assets, dropped about 2%, briefly falling below $94,000 per token. However, the decline didn’t last long.
The original cryptocurrency staged a strong rebound, wiping out losses and climbing back above $97,000 per token by Thursday. Crypto markets remain highly volatile as investors digest the latest inflation data and its potential impact on the still-developing digital asset market.
One major concern for risk-tolerant investors is whether inflationary pressures will persist despite the Federal Reserve’s yearslong battle against rising prices.
The inflation uptick follows the Federal Reserve’s decision last week to hold interest rates steady, despite president Donald Trump publicly calling for interest rate cuts. Trump took to social media to demand lower borrowing costs to align with the imposed tariffs. Many analysts worry that tariff hikes could drive inflation even higher in the future.
The Fed already cut interest rates three times last year before pausing further reductions. “We don’t see any reason to be in a hurry to reduce further,” Fed Chair Jay Powell said.
The central bank has made it clear that it’s closely watching economic data before making any moves. So far, that data hasn’t supported further rate cuts — something traders will likely factor into their strategies moving forward.
Inflation often rises in January, as many companies raise prices at the beginning of the year. However, the government’s seasonal adjustment process is designed to smooth out those effects.
Still, some experts say inflation’s persistence isn’t just a one-month anomaly. Consumers — especially wealthier ones — are continuing to spend at a strong pace, giving businesses little incentive to lower prices.