Hope for more fed reductions dampened as Powell notes Hot CPI means ‘We are not quite there yet’

A reduction in the Federal Reserve Interest rate will not come until at least September, if at all this year after a troubled inflation report on Wednesday, according to updated market prices.

Futures markets changed from the expectation of a clip in June and possibly another before the end of the year to no movements before the fall, with a minimal chance of a follow -up by the end of 2025.

“Fed will watch January’s hot inflation sprint as confirmation that the price pressure continues to bubble below the economy’s surface,” wrote Bill Adams, chief economist at Comerica, in comment that repeated others around Wall Street. “It will strengthen Fed’s propensity for at least slow and possibly even final frequency cuts in 2025.”

Reduced optimism for bold -emptying came after the consumer price index report for the consumer price index showed a monthly gain of 0.5%, pushing the annual inflation rate to 3%, a touch higher than December and only slightly lower than 3.1%reading in January 2024 .

Fed -Chairman Jerome Powell, in a performance on Wednesday before the House Financial Services Committee, insisted that Fed had made “great progress” on inflation from his cycle tip “, but we are not quite there yet. So we want to keep the policy restrictive for Now ”

Since Fed is targeted at 2% inflation and the report showed no recent progress, it also dampened hope that the central bank will see additional policy where it was relevant after it has collected a full percentage point from its benchmark card-term loan frequency in 2024 .

Fed Funds Futures Trading pointed at only 2.5% chance of a march cut; Only 13.2% in May, up to 22.8% in June, then 41.2% in July and eventually up to 55.9% in September, according to CME Groups Fedwatch Gauge from late Wednesday morning. However, it would leave the probability still up in the air until October, when Futures contracts pricing involves a 62.1% probability.

Odds for another cut by the end of 2025 were only 31.3%, with pricing that does not indicate another reduction until the end of 2026. The Fed Foundation’s rate is currently targeted in an interval between 4.25%-4.5%.

The questions raised in the CPI report are not in isolation. Politicians also see in the White House trade policy, where President Donald Trump pushes aggressive tariffs that can also increase prices and complicate Fed’s desire to reach his goal.

“There is nothing to get away from the fact that this is a warm report, and with the feeling that potential tariffs are running at the main risk of inflation, the market is understandably of the opinion that the Federal Reserve finds it challenging to justify justify Interest treams in the near future, “said James Knightley, Chief International Economist at Ing.

While Fed is aware of CPI and other similar price measures, its preferred inflation monitor is the personal consumption cost that the Bureau of Economic Analysis will release later in February. Elements from CPI filter into the PCE reading, and Citigroup said it expects to see Core PCE fall to 2.6% for January, a decrease of 0.2 percentage points from December.