The main reason political pressure on the Federal Reserve has not caused markets to price in deeper interest rate cuts is perhaps \u200bthe simplest: U.S. inflation is just too high to justify it, and there \u200dare signs it may be picking up again.<\/p>\n
The Fed\u2019s favored measure of inflation – core personal consumption expenditures (PCE) inflation, which excludes volatile food and energy prices – is creeping higher again, and several alternative gauges of retail prices also show some heat building as 2026 is getting underway. <\/p>\n
Even though the December PCE report is not due \u200dout for \u200banother two weeks, Fed Chair Jerome Powell made clear last week that the central bank now assumes that core PCE inflation ran at 3% in the final month of last year.<\/p>\n
Not only is 3-per-cent core inflation a full point above the Fed\u2019s inflation target, but it\u2019s going in the wrong direction. It would be the fastest rate in over two years, more than 40 basis points higher than it was running last April.<\/p>\n
That\u2019s cause for a pause, no doubt.<\/p>\n
What\u2019s more concerning are signs from January \u2060that price rises may be heating up for households and businesses alike. With economic activity facing upward pressures and business loan growth expanding, it\u2019s fair to ask whether the current Fed rate settings are bearing down on inflation at all.<\/p>\n
According to UBS, online retail prices captured by Adobe\u2019s Digital Price Index rose in January by the most in the series\u2019 12-year history.<\/p>\n
Even though January typically sees higher monthly inflation than other months, price rises this year were the fastest ever seen in that survey.<\/p>\n
On top of \u200cthis, annual online price inflation of 2.9% is \u200dthe fastest rate since the post-pandemic period between 2020 and 2022 – the point at which the Fed began its steep credit tightening. This metric remained \u200dnegative for most of the next three years up until last summer.<\/p>\n
With the \u200cJanuary index\u2019s jump driven mainly by the price of electronics, computers, appliances and furniture, UBS said the increase could be a \u2060sign that last year\u2019s import tariffs are feeding through to consumers, though the bank urged caution about data volatility.<\/p>\n
How big a deal might it be more broadly that U.S. \u200bonline retailers are jacking up prices so sharply to start the new year?<\/p>\n
Somewhat surprisingly, online shopping is still a relatively small share of overall U.S. retail spending – some 16%. However, up to a third of consumers reckon they buy online and in stores.<\/p>\n
UBS economist Alan Detmeister also points out that the online price index led a similar basket of the consumer price index both up and down during the pandemic period and thus bears close watching.<\/p>\n
What\u2019s more, U.S. businesses are also seeing input price growth \u200bpick up pace this year. January U.S. factory and service sector surveys from ISM show the already brisk growth in \u201cprices paid\u201d went up another notch last month. That raises some concern about a lagged \u201cpassthrough\u201d of those costs to consumers.<\/p>\n
Combine this with Fed bank surveys showing strengthening loan growth, annualized GDP growth tracking at more than 4 per cent and a relatively stable labor market and many at the Fed are likely wondering whether further credit easing is wise at this time. <\/p>\n
Richmond Fed boss Tom Barkin, for one, seems uncomfortable with the state of affairs and reckons the economy may now be seeing the effects of fiscal and monetary expansion hitting with a delay.<\/p>\n
\u201cInflation … still \u2060remains above our target. That\u2019s been the case since 2021,\u201d Barkin said on Tuesday. \u201cI take this sustained miss seriously. Today\u2019s inflation numbers, regardless of the \u2018why,\u2019 significantly influence \u2060tomorrow\u2019s inflation.\u201d<\/p>\n
For President Donald Trump and his administration, the whole picture may sour his election year \u201caffordability\u201d drive – and also call into question his call for sharply lower interest rates. <\/p>\n
For Fed Chair nominee Kevin \u200cWarsh, it heaps pressure on what is likely to be his first policy meeting at the helm in June, especially if the long-time hawk tries to argue for the rate cuts the president has demanded. What he says in the meantime about his stance will now be particularly sensitive. <\/p>\n","protected":false},"excerpt":{"rendered":"The main reason political pressure on the Federal Reserve has not caused markets to price in deeper interest…\n","protected":false},"author":2,"featured_media":456448,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[901,888,902,879,877,903,45,49,48,876,895,896,891,878,875,46,549,295,894,887,914,880,881,893,889,890,884,904,885,909,910,912,907,911,905,908,882,898,899,714,897,906,865,61,900,892,886,883,913],"class_list":{"0":"post-456447","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-alberta","9":"tag-arts-news","10":"tag-bc","11":"tag-breaking-news","12":"tag-breaking-news-video","13":"tag-british-columbia","14":"tag-business","15":"tag-ca","16":"tag-canada","17":"tag-canada-news","18":"tag-canada-sports","19":"tag-canada-sports-news","20":"tag-canada-trafficcanada-weather","21":"tag-canadian-breaking-news","22":"tag-canadian-news","23":"tag-economy","24":"tag-education","25":"tag-environment","26":"tag-federal-government","27":"tag-foreign-news","28":"tag-globe-and-mail","29":"tag-globe-and-mail-breaking-news","30":"tag-globe-and-mail-canada-news","31":"tag-government","32":"tag-life-news","33":"tag-lifestyle","34":"tag-local-news","35":"tag-manitoba","36":"tag-national-news","37":"tag-new-brunswick","38":"tag-newfoundland-and-labrador","39":"tag-northwest-territories","40":"tag-nova-scotia","41":"tag-nunavut","42":"tag-ontario","43":"tag-pei","44":"tag-photos","45":"tag-political-news","46":"tag-political-opinion","47":"tag-politics","48":"tag-politics-news","49":"tag-quebec","50":"tag-sports-news","51":"tag-technology","52":"tag-travel","53":"tag-trudeau","54":"tag-us-news","55":"tag-world-news","56":"tag-yukon"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/456447","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=456447"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/456447\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/456448"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=456447"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=456447"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=456447"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}