Inflation in the United States rose unexpectedly to 3% in January, fuelling speculation that the Federal Reserve may keep interest rates higher for longer.
Data from the Bureau of Labour Statistics showed inflation increasing from 2.9% the previous month, defying analysts’ expectations that it would remain unchanged. On a monthly basis, prices rose by 0.5%, up from 0.4% in December. Core inflation, which the Fed closely monitors, also jumped to 0.4% in January from 0.2% in December, with annual core inflation rising to 3.3% from 3.2%.
The figures cast fresh doubt on whether the Fed will cut interest rates in 2024. Fed chair Jerome Powell told the Senate banking committee that there was “no need to rush” into lowering borrowing costs, reinforcing growing scepticism among economists.
The central bank left its key interest rate on hold at 4.25% to 4.5% in January, having cut it by a percentage point last year. President Donald Trump has repeatedly called for rate reductions, arguing that lower borrowing costs would complement his latest wave of tariffs on imports. However, Powell has resisted political pressure, with analysts suggesting that inflationary risks, exacerbated by Trump’s trade policies, could keep rates elevated.
Financial markets reacted with volatility. The S&P 500 fell 0.3% to 6,051.97, while the Dow Jones Industrial Average slipped 0.5% to 44,368.56. The Nasdaq, which had been down nearly 1%, recovered to close marginally higher at 19,649.95. The US dollar strengthened on the news, with the dollar index rising 0.32%, while the pound fell 0.34% against the greenback to $1.240.
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