Does The Fed Have An Inflation Problem? Not Yet, But The Clock Is Ticking

2025-02-13 15:57:00 ET

Summary

• The January report on consumer prices confirmed that inflation remains stubborn. Both headline and core readings of the consumer price index rose more than expected for the monthly and annual comparisons.
• Looking at a broader measure of inflation metrics, including several indexes published by regional Fed banks, shows pricing pressure is heating up.
• The 5-year breakeven inflation rate rose to 2.66% on Wednesday (Feb. 12), the highest in nearly two years.
• It’s premature to start talking about rate hikes, but rate cuts appear to be on pause until further notice.

By James Picerno

The January report on consumer prices confirmed that inflation remains stubborn. Both headline and core readings of the consumer price index (CPI) rose more than expected for the monthly and annual comparisons. The optimistic view adopted by some analysts is that temporary effects from a variety of factors are to blame (the surge in egg prices due to an avian flu outbreak, for instance). Perhaps, but there are deeper signs that sticky inflation risk is gaining traction. That’s a concern because it may lay the groundwork for an ongoing pickup in pricing pressure if left unchecked....

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