Biden, Fed Rocked By Latest Inflation Numbers

Joe Biden’s claims that inflation is ending for American consumers were dashed by new data from the U.S. Commerce Department indicating that consumer prices are rising at a faster rate than expected. The personal consumption expenditure (PCE) price index increased by 0.6% in January compared to the previous month, while the 12-month gain rose to 5.4%. The core PCE price index, which excludes volatile food and energy prices, also jumped 0.6%, with a 4.7% increase year-over-year.

The figures all point to strong underlying inflationary pressures within the American economy, with food and energy prices rising by 11.1% and 9.6%, respectively, since January 2022.

Economists had forecast a 0.4% gain in the PCE price index from the prior month and a 4.9% increase for the year, indicating that inflation has accelerated much faster than anticipated. The revisions indicate that the break from skyrocketing inflation late last year was less substantial than first appeared.

The report has raised concerns for the Federal Reserve. The central bank relies on the PCE price index as the basis for its 2% annual inflation target. It is also used in the calculations of economic growth by the Commerce Department.

The Fed had voted to raise its benchmark interest rate another quarter percentage point earlier in the month, but a series of hotter-than-expected economic data reports, including the recent blowout January jobs report and this disappointing inflation report, has raised concerns more aggressive rate hikes could be coming.

Inflation had appeared to retreat in November and December, leading many analysts to believe that the Fed’s rate increases had finally begun to take hold.

However, the January report suggests that inflation has surged higher, and revisions to earlier months indicate that it had not faded as much as thought. The CME FedWatch tools show a 70% chance there will be a 25 basis point increase when the Fed meets in March. They predict a 30% chance of a 50 basis point hike.

The data shows that the Fed may have to continue its rate-hiking campaign for much longer than markets anticipated just a few weeks ago. Markets slumped immediately after the report was published, with futures tied to the Dow Jones Industrial Average shedding more than 300 points. The Dow closed off by 2.75% over the last 30 days.