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Headline inflation in the United States slowed to 3.1 percent in January, a more modest improvement than expected, challenging market expectations that the Federal Reserve would begin cutting interest rates in May.
Economists surveyed by Bloomberg forecast an annual consumer price rise of 2.9 percent, up from 3.4 percent in December.
Core inflation, a closely watched measure that excludes volatility in food and energy prices, was 3.9 percent year-on-year in January, in line with the previous month.
Monthly headline inflation rose 0.3 percent, beating the 0.2 percent forecast.
The figures come as the Fed considers when it should begin cutting interest rates this year from their current level of 5.25 to 5.5 percent.
Following the higher-than-expected inflation figures, futures traders downgraded their bets on the likelihood of a May rate cut from 50 percent to 30 percent, while a June cut was unlikely. more fully taken into account.
U.S. stock futures fell sharply after the release, while government bond yields soared.
The two-year Treasury yield, which moves with interest rate expectations, jumped 0.15 percentage points to 4.62 percent. The benchmark 10-year yield added 0.11 percentage points. Yields increase as prices fall.
The dollar, whose movements are influenced by changes in rate expectations, traded 0.6 percent higher.
Futures contracts linked to the S&P 500 extended earlier losses to trade down more than 1 percent, while those tracking the tech-heavy Nasdaq 100 were down 1.7 percent before the opening of New York.
Housing costs, auto insurance and medical care all contributed to price pressures in January. Housing, the largest component of which is the cost of rent, was the main contributor to core inflation, with the index rising 0.6 percent in January.
The dramatic fall in inflation over the past year has prompted central bankers in the United States, Europe and the United Kingdom to rule out further rate hikes and begin discussing the possibility of cuts.
Last month, Fed Chairman Jay Powell said the Federal Open Market Committee planned to cut interest rates three times this year, but he signaled it was unlikely it begins to do so until further progress is made toward its 2 percent inflation target.
The Fed’s preferred measure of inflation is the core index of personal consumption expenditures, which has slowed more dramatically than the CPI. The core PCE index rose 2.9 percent in January on an annual basis, the first reading of less than 3 percent in about three years.
The Fed’s next policy meeting is scheduled for March 19-20, during which it will release its latest “dot plot” survey showing officials’ projections for interest rates, inflation and unemployment.