The US January CPI "explosion" scares off rate cut expectations, the dollar soars, and the suspense of the Federal Reserve's interest rate hike rises again?

According to Zhitong Finance APP, the consumer price index (CPI) in the United States rose more than expected in January, reinforcing the Federal Reserve's stance of not rushing to resume interest rate cuts amid increasing economic uncertainty. Data released by the U.S. Bureau of Labor Statistics on Wednesday showed that the unadjusted CPI in January rose 3% year-on-year, marking the largest increase since June 2024. The seasonally adjusted CPI in January rose 0.5% month-on-month, the largest increase since August 2023. The seasonally adjusted core CPI in January rose 0.4% month-on-month, the largest increase since March 2024. The BLS stated that nearly 30% of this increase was due to rising housing costs.

It is understood that the report incorporated new weights for the consumption basket to more accurately reflect American consumption habits. The annual recalculation also revised the monthly data for the past five years, seasonally adjusted. The BLS updated the weights and seasonal adjustment factors, which the government uses to eliminate seasonal fluctuations from the data to reflect price trends in 2024.

Analysts pointed out that part of the reason for the CPI increase in January may be due to companies pushing prices up at the beginning of the year, as well as expectations that tariffs on imported goods will be raised comprehensively, leading to preemptive price increases.

Additionally, Wednesday's report further confirmed the risk of a reversal in the inflation process—combined with a solid labor market, the Federal Reserve is likely to maintain interest rates unchanged in the foreseeable future. Policymakers are also waiting for further clarification on President Trump's policies, especially regarding tariffs, which have already led to an increase in consumer inflation expectations.

Earlier this month, President Donald Trump announced a suspension of the 25% tariffs on goods from Canada and Mexico until March. Economists expect that these tariffs, once implemented, will drive up inflation. Federal Reserve Chairman Jerome Powell also stated on Tuesday that inflation eased slightly last year, but recent progress has not been smooth, and the inflation rate remains above the central bank's 2% target.

It is worth mentioning that a survey conducted by the University of Michigan last week showed that consumers' one-year inflation expectations soared to a 15-month high in early February, as households believe that "it may be too late to avoid the negative impacts of tariff policies."

This trend, combined with a stable labor market, has led Bank of America Securities to continue believing that the Federal Reserve's easing cycle has ended. In January, the Federal Reserve kept its benchmark overnight interest rate unchanged in the range of 4.25%-4.50%, having cumulatively lowered it by 100 basis points since the easing cycle began in September.

Following the release of the U.S. CPI, financial markets reacted quickly. The dollar index rose 50 points in the short term, reporting 108.43; spot gold fell $12 in the short term, with a daily decline of over 1%, currently reported at $2868.57 per ounce; U.S. Treasury yields surged, with the 10-year yield rising 6.1 basis points to 4.602%At the same time, non-US currencies generally fell, with the EUR/USD dropping 40 points to 1.0333; the GBP/USD falling nearly 70 points to 1.2385; and the USD/JPY rising nearly 120 points to 154.32.

Traders' expectations for Federal Reserve policy have also changed. They now expect the Fed to reduce the pace of policy easing and have adjusted the timing of the next rate cut from September to December. At the same time, they anticipate that the Fed's rate cut by December will only be 26 basis points, down from about 37 basis points before the data was released, indicating that there may only be one 25 basis point cut this year.

Analyst Anstey provided a quick review of the US CPI data, stating that this is not good news for the Fed. This could trigger speculation that the next move in interest rates may be an increase rather than a decrease. This view aligns with that of former US Treasury Secretary Summers, further intensifying market uncertainty regarding future interest rate trends