According to the Consumer Price Index (CPI), inflation rose slightly more than expected in the month of January. The CPI rose by 0.3% month-over-month — against an expected 0.2% — and 3.1% year-over-year — against an expected 2.9%. Right now, the Federal Reserve appears adamant about sticking to its goal of cooling the inflation rate to 2%, expected to hold interest rates higher for longer until mid-2024.
Wolfe Research Chief Economist Stephanie Roth and Sahm Consulting Founder Claudia Sahm sit down with Yahoo Finance to discuss January's CPI print and what it means for the Fed's inflation goals.
"The Fed will respond to reality, right, so they will take on board if the disinflation comes faster than they think," Sahm, a former Federal Reserve Board economist, says. "They also said, we're not going to wait until 2% to do our first cut. So they're going to have to get going at some point this year, but it is really all about the inflation data. At least that's what the Fed has put emphasis on."
Click here to watch the full interview on the Yahoo Finance YouTube page page or you can watch this full episode of Yahoo Finance Live here.
Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
BRAD SMITH: You think about this data-dependent Fed and at what point they would need to see a significant shift or at least a long enough trend, perhaps, in order to shift their own pathway, as well. What would you be watching for? And what does this data do for that broader trend?
STEPHANIE ROTH: Well, I think it's important to note that January print has had seasonality issues, so it is possible that we'll see a notable deceleration in February and March month. That's actually what we were calling for. We are expecting the seasonality to add about a tenth to the print, and it seems like that might be the case.
Services in particular, you tend to get annual price increases that tend to go into effect in the month of January, and the seasonal just don't appear to be picking that up yet. We've seen this for the past couple of years, that January tends to be a bit hotter than what's the underlying trend. So our base case is certainly-- March is off the table, like Claudia said. Our base case is that they're going to be cutting in June. They want to see a little bit more data, they want to see the year-over-year CPI print come down closer to 2%, which will need another couple of months in order to get there.
RACHELLE AKUFFO: And, Claudia, I know that, obviously, the Fed hyper-focused on that 2% inflation data. But obviously, a lot of this, this is lagging data. So when you look at the strength of the labor market, when you combine that in, how much credence does that give to the cost to the economy of doing too much, versus too little right now?