As reported by the U.S. Department of Labor’s Bureau of Labor Statistics, the U.S. Consumer Price Index (CPI) decreased to 3.1% year-on-year in January, a drop of three-tenths of a percentage point from December. The high inflation on U.S. soil and its persistence buried the options for a possible lowering of interest rates by the U.S. Federal Reserve (Fed).

On the other hand, the U.S. Underlying CPI, which does not consider energy and food prices due to their volatility, ended January with an increase of around 3.9%, remaining flat compared to the previous month and achieving the lowest figure since September 2021.

Additionally, food prices saw a 2.6% increase from the previous year, while energy prices were about 4.6% lower in January than in December.

For monthly rates, the CPI increased by three-tenths of a point, up from December’s two-tenths increase; concurrently, the core CPI saw a 0.4% increase, slightly higher by one-tenth compared to the previous month.

Effects of the U.S. CPI

The Federal Open Market Committee (FOMC) of the U.S. Federal Reserve decided to keep interest rates unchanged in January, setting them at a target range of 5.25% to 5.5%, levels not seen since January 2001.

In this way, the financial institution maintained its monetary policy for the fourth meeting after the last 25 basis point increase in the money price in July. “The Committee will continue to evaluate incoming information carefully, the changing environment, and the balance of risks,” the Federal Reserve announced.

Likewise, the central bank stressed that it expects it to be indicated to reduce the target range once it has achieved greater assurance that inflation is reaching target levels of 2%.

In looking at the ideal direction for monetary policy, the Committee said it would continue to monitor the implications of the new data for the macroeconomic outlook.

Market analysts have the feeling that stock markets on U.S. soil will continue to rise for some time and possibly longer despite the warnings made by Federal Reserve Chairman Jerome Powell regarding the markets.

In addition to Powell, Christine Lagarde, the head of the European Central Bank, has repeatedly stated that the markets are overly optimistic, expecting interest rate cuts only when data indicates a steady decline in inflation to the target level of 2%.