Traders pivot Fed rate cut bets after CPI surprise

Traders priced successful higher likelihood that the Federal Reserve volition cut interest rates more than 2 times this year, prompting Treasury marketplace gains aft the latest gauge of inflation showed a surprise.

• Overall ostentation unexpectedly dropped to 2.4% successful January from the aforesaid clip past year. That was down from the erstwhile 2.7% yearly pace.

• Core inflation, which filters retired volatile nutrient and vigor prices, ticked down to 2.5% connected a year-over-year basis. It past stood astatine 2.6%.

Since the Consumer Price Index roseate little than expected past month, it whitethorn person addressed concerns of immoderate Fed policymakers that ostentation whitethorn beryllium excessively precocious to chopped involvement rates much than erstwhile this year, particularly aft the blistery January jobs study was overmuch stronger than expected.

“If January’s CPI had travel successful hot, we would person cautioned against taking it excessively virtually – but the information that the January study was truthful tepid comparative to a emblematic January is somewhat of a signal...We expect disinflationary unit to predominate successful the adjacent fewer months, and expect the Fed to chopped rates by 100 bps this year,’’ Bloomberg economists said successful a note.

The Bureau of Labor Statistics reported Feb. 13 that the CPI roseate 0.2% emergence successful January, the smallest summation since July, reflecting little vigor costs.

Alongside caller signs of a stabilizing labour market, Fed officials volition apt privation to spot further advancement connected ostentation earlier lowering involvement rates.

“On balance, we recovered today’s study to beryllium encouraging,” Wells Fargo & Co. economists said successful a enactment reported by Bloomberg. “Tariff-induced terms hikes astir apt person not afloat worked their mode done the data, but we are person to the extremity than the opening of this root of higher prices.”

The Federal Open Market Committeevoted 10-2 to clasp involvement rates dependable astatine 3.50% to 3.75% successful January connected the benchmark Federal Funds Rate aft 3 continuous cuts of 25 ground points successful its past 3 meetings of 2025.

The Federal Funds Rate guides involvement rates for investors and consumers on car and student loans, home-equity loans and credit cards.

For consumers, a delayed complaint chopped could mean higher borrowing costs that stay successful spot longer than expected.

Fed Governors Stephen Miran and Christopher Waller dissented, saying they would person preferred a 25 basis-point chopped owed to softening successful the labour market.

It was the FOMC’s archetypal intermission since July 2025.

The Fed’s dual legislature mandate requires it to equilibrium ostentation and occupation maturation via involvement rates.