The latest data from the United States reveals a concerning trend in inflation, registering the highest rise since last July, with prices climbing for four consecutive monthsThis surge, triggered by increased costs of goods and services alongside the tumultuous landscape of US tariff policies, puts the Federal Reserve in a precarious positionThey are not likely to rush into cutting interest rates amid escalating economic uncertainty.

Some financial institutions speculate that the Federal Reserve may choose to remain on the sidelines for the remainder of the year, opting to monitor the situation closely before making any drastic moves.

As inflationary pressures heat up ahead of impending tariffs, the situation is becoming criticalAccording to the US Bureau of Labor Statistics, the Consumer Price Index (CPI) witnessed a month-over-month increase of 0.5% last month, the most significant jump since August 2023. Year-on-year, the CPI climbed an alarming 3%, marking the highest inflation rate since June 2024, surpassing the previous figure of 2.9%.

Housing costs, a major component of the CPI, increased by 0.4% month-over-month, representing nearly 30% of the overall CPI increaseOver the last two months, housing prices had already risen by 0.3%. Grocery prices likewise spiked by 0.5%, largely due to the avian flu crisis which has led to severe shortages in egg supply, with retail prices soaring over 50% year-on-year and 15% month-on-month, marking their highest point since 2015. The American Farm Bureau previously projected that egg prices would surge by more than 20% nationwide this year.

When excluding the volatile categories of food and energy, the core CPI also showed an increase, rising by 0.4% in January, with the year-on-year growth accelerating to 3.3%.

Furthermore, prescription drug costs jumped a staggering 2.5%, hitting a record high, and motor vehicle insurance continued its upward trend with a 2.0% increaseThe price of hospital services rose by 0.9%, while other categories such as used cars, communications, and education also exhibited price increases

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In contrast, clothing prices fell by over 1%, making it one of the few categories to see a decline.

It is crucial to note that companies may preemptively raise prices in anticipation of heightened tariffs on import goods, thereby exerting additional pressure on overall pricesEarlier this month, the US had paused the imposition of 25% tariffs on goods coming from Canada and Mexico, yet analysts are eagerly awaiting policy decisions that could influence additional industriesMarket experts broadly expect that once these tariffs are implemented, they will intensify inflationary pressures.

During a congressional hearing on Wednesday, Federal Reserve Chair Jerome Powell indicated that there is still a distance to cover in achieving the target inflation rate of 2% for the economy.

The ramifications of persistently high inflation could jeopardize the new government’s agenda, including tax cuts that might overly stimulate an otherwise healthy economy and large-scale deportations of undocumented immigrants, which are seen as potential triggers for labor shortages and increased business labor costsAnderson, Chief US Economist at Montreal Bank Capital Markets, expressed concern: “The slowing consumer inflation we observed last summer is no longer evidentThe Fed is faced with an ongoing situation that appears to extend beyond just a month of inflationary effects.”

Given the CPI revelations, Wall Street anticipates that the upcoming core Personal Consumption Expenditures (PCE) price index for January may also show a month-over-month increase of 0.4%, with the year-on-year growth possibly dipping slightly to 2.7%, still above the targeted 2% inflation threshold.

The outlook for interest rate cuts appears increasingly cloudedFollowing the release of the latest inflation data, futures tied to the federal funds rate suggest the window for reduced rates has been delayed even further into December, with a probability exceeding 70%. EY-Parthenon Chief Economist Daco remarked that “if government policy fuels inflation and inflation expectations, then the inclination will lean toward less monetary easing.”

Within the Federal Reserve, there are growing hawkish sentiments emerging

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