Getting inflation under control since the worst surge in decades has been a bumpy process in recent months. New data on Friday showed only a little progress.
The central bank’s preferred inflation measure, released on Friday, climbed 2.5 percent in January from a year earlier, slightly lower than the previous reading of 2.6 percent but still well above the central bank’s 2 percent target. On a monthly basis, prices increased 0.3 percent, in line with December’s pace.
The “core” personal consumption expenditures price index, which strips out volatile food and energy costs and is closely-watched as a gauge for underlying inflation, rose another 0.3 percent in January. Compared to the same time last year, it is up 2.6 percent, data from the Commerce department showed.
The figures were in line with what economists had expected and underscored the Federal Reserve’s decision to proceed cautiously with interest rate cuts after making adjustments in the second half of last year. The interest rate set by the Fed currently stands at 4.25 percent to 4.5 percent.
To restart rate cuts, officials at the central bank said they need to see convincing evidence that inflation is indeed in retreat and headed back to 2 percent. Speaking at an event on Thursday, Beth Hammack, president of Federal Reserve Bank of Cleveland, said it was “far from a certainty” that inflation would gradually decline soon and that “upside risks to the inflation outlook abound.” For that reason, she backed the Fed being on hold “for some time.”
What could prompt policymakers to pull forward their timing for a cut or pencil in a much steeper reduction in borrowing costs is if the labor market unexpectedly weakens.
Concerns about the economy have taken center stage in recent days as a number of sentiment surveys showed consumers souring on the outlook for growth as well as for inflation. The shift comes as households and businesses brace for policy changes coming from the White House.
President Trump doubled down on his plans to slap tariffs on two of the country’s biggest trading partners, Canada and Mexico. He has also threatened steeper levies on China as well as a raft of measures to protect steel and aluminum imports, among other industries. These plans come alongside proposals to deport migrants, lower taxes, cut government spending and reduce regulation.
Fed officials are focused on what they have referred to as the “net effect” of Mr. Trump’s policies and have largely opted against commenting directly as to how they may alter their plans for interest rates.
