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Consumer price report expected to show inflation isn’t going away

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Cartons of eggs are displayed at a grocery store with a warning that limits will be placed on purchases as bird flu continues to affect the egg industry on Feb. 10, 2025 in New York City.

Spencer Platt | Getty Images

The January consumer price index report is likely to tell a familiar story: Another month, another expected miss for inflation as it relates to the Federal Reserve‘s goal, with concerns aplenty about what happens from here.

So instead of looking for hope from the headline readings, which aren’t expected to change much from December, markets will pore through the details for trends that could shed some hope that the Fed eventually will be able to start lowering rates again.

“Inflation is stuck above target, with risks skewed to the upside, activity is strong, and the labor market appears to have stabilized around full employment,” Bank of America economist Stephen Juneau said in a note. “If our January CPI forecast is correct, the case for the Fed to stay on hold will strengthen further.”

Bank of America is one of the most pessimistic voices on Wall Street in terms of expecting further Fed easing.

In fact, the bank’s economists believe the Fed will stay on hold for the rest of the year — and beyond — as inflation holds higher, the labor market remains strong and the economy generally stays out of the kind of trouble that would necessitate rate cuts. Traders otherwise figure the Fed to approve a quarter percentage point reduction in July and then stay put, according to CME Group data.

More immediately, Bank of America’s forecast pretty much meshes with the Dow Jones outlook for January CPI: a monthly increase of 0.3% for the all-items index and a 12-month inflation rate of 2.9%, the latter same as December. Excluding food and energy, the respective core readings are projected at 0.3% and 3.1%, the annual mark just a notch down from the 3.2% reading in December.

From a details standpoint, increases are likely to be driven by rises in car prices and auto insurance as well as communications, according to Goldman Sachs. The firm expects only moderate downward pressure from airfares and, importantly, the rent-related categories that make up about one-third of the CPI weighting and have been largely responsible for inflation holding above the Fed’s 2% goal.

Things only get more complicated from here.

Optimism despite tariff concerns

While economists expect a good share of disinflation from some key categories, President Donald Trump’s tariffs could act as an inflationary counterweight.

“Going forward, we see further disinflation in the pipeline over the next year from rebalancing in the auto, housing rental, and labor markets, but an offset from an escalation in tariff policy,” Goldman economists said in a note.

There’s been some good news lately, though. While the University of Michigan’s consumer survey showed a surprising bump in inflation expectations, other measures indicate the outlook is actually softening.

The National Federation of Independent Business survey for January showed that just 18% of the small business gauge reported inflation as being their biggest issue, the lowest level since November 2021. Also, the Cleveland Fed’s first-quarter Survey of Firms’ Inflation Expectations showed that CEOs and other top executives see CPI to run at a 3.2% rate over the next 12 months. While that’s well above the 2% standard, it is a sharp drop from the 3.8% in the fourth quarter.

Amid the conflicting information, the Fed is expected to stay put.

Fed Chair Jerome Powell on Tuesday said the central bank is in no rush to cut rates further, while Cleveland Fed President Beth Hammack noted the persistence of inflation that could be exacerbated by tariffs as reason to stay put.

“While monetary policy needs to be forward-looking in nature, forecasts are no substitute for realizations. Or as they might have put it in Jerry Maguire, ‘show me the low inflation,'” Hammack said.

Economics

Andrew Bailey on why UK-U.S. trade deal won’t end uncertainty

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Bank of England Governor Andrew Bailey attends the central bank’s Monetary Policy Report press conference at the Bank of England, in the City of London, on May 8, 2025.

Carlos Jasso | Afp | Getty Images

Bank of England Governor Andrew Bailey told CNBC on Thursday that the U.K. was heading for more economic uncertainty, despite the country being the first to strike a trade agreement with the U.S. under President Donald Trump’s controversial tariff regime.

“The tariff and trade situation has injected more uncertainty into the situation… There’s more uncertainty now than there was in the past,” Bailey told CNBC in an interview.

“A U.K.-U.S. trade agreement is very welcome in that sense, very welcome. But the U.K. is a very open economy,” he continued.

That means that the impact from tariffs on the U.K. economy comes not just from its own trade relationship with Washington, but also from those of the U.S. and the rest of the world, he said.

“I hope that what we’re seeing on the U.K.-U.S. trade side will be the first of many, and it will be repeated by a whole series of trade agreements, but we have to see that happen of course, and where it actually ends up.”

“Because, of course, we are looking at tariff levels that are probably higher than they were beforehand.”

Trump unveils United Kingdom trade deal, first since ‘reciprocal’ tariff pause

In Bank of England’s Monetary Policy Report released Thursday, the word “uncertainty” was used 41 times across its 97 pages, up from 36 times in February, according to a CNBC tally.

The U.K. central bank cut interest rates by a quarter percentage point on Thursday, taking its key rate to 4.25%. The decision was highly divided among the seven members of its Monetary Policy Committee, with five voting for the 25 basis point cut, two voting to hold rates and two voting to reduce by a larger 50 basis points.

Bailey said that while some analysts had perceived the rate decision as more hawkish than expected — in other words, leaning toward holding rates elevated than slashing them rapidly — he was not surprised by the close vote.

“What it reflects is that there are two sides, there are risks on both sides here,” he told CNBC.

“We could get a much more severe weakness of demand than we were expecting, that could then pass through to a weaker outlook for inflation than we were expecting.”

“There’s a risk on the other side that we could get some combination of more persistence in the inflation effects that are gradually working their way through the system,” such as in wages and energy, while “supply capacity in the economy is weaker,” he said.

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Economics

Trump knocks down a controversial pillar of civil-rights law

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IN THE DELUGE of 145 executive orders issued by President Donald Trump (on subjects as disparate as “Restoring American Seafood Competitiveness” and “Maintaining Acceptable Water Pressure in Showerheads”) it can be difficult to discern which are truly consequential. But one of them, signed on April 23rd under the bland headline “Restoring Equality of Opportunity and Meritocracy”, aims to remake civil-rights law. Those primed to distrust Mr Trump on such matters may be surprised to learn that the president’s target is not just important but also well-chosen.

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Economics

Harvard has more problems than Donald Trump

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A Programme at Harvard Divinity School aspired to “deZionize Jewish consciousness”. During “privilege trainings”, working-class Harvard students were instructed that, by being Jewish, they were oppressing wealthier, better prepared classmates. A course in Harvard’s graduate school of public health, “The Settler Colonial Determinants of Health”, sought to “interrogate the relationships between settler colonialism, Zionism, antisemitism, and other forms of racism”: Will these findings by Harvard’s task-force on antisemitism and anti-Israel bias, released on April 29th, shock anyone? Maybe not. Americans may be numb by now to bulletins about the excesses, not to say inanities, of some leftist academics.

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