Investors sharply pared back chances for an imminent rate cut in the wake of the data, betting that the Fed will not lower interest rates at their next meeting in March and sharply dialing back the odds that it will do so even at their following meeting in May — a sign that they think the fresh inflation figures will keep officials wary.
Fed policymakers have raised interest rates to about 5.3 percent, up from near zero in early 2022, in a bid to cool consumer and business demand and force companies to stop raising prices so quickly. Because inflation has been coming down notably in recent months, they have paused their rate increases and are contemplating when and how much to lower borrowing costs.
But they want to avoid cutting rates before inflation is fully snuffed out, because they worry that doing so could allow rapid price increases to become a more permanent feature of the American economy.
“They were right to be patient, because this is the kind of number that is going to cast doubt on whether there really is a lot of deceleration in store for inflation,” said Omair Sharif, founder of Inflation Insights. “This is definitely a spooky number.”
Slower inflation over recent months has also been a welcome development for President Biden. Surging living expenses have eaten away at household budgets, weighing on voter confidence even though the job market is strong and wages are climbing at a brisk pace. As price increases have begun to ease, people are starting to report sunnier economic outlooks.