Federal Reserve Atlanta Fed President Raphael Bostic stated in an interview that the January Consumer Price Index (CPI) data exceeded expectations, but it is still uncertain whether a new inflation trend has formed. He emphasized that policy makers still need to observe data from the coming months to determine if inflation trends have changed.

The data shows that the core CPI excluding food and energy increased by 0.4% month on month, higher than the 0.2% in December last year, and hit the largest monthly increase since April 2023. In addition, the core CPI increased by 3.3% year-on-year, slightly higher than the 3.2% in December, marking the first sign of inflation rebound since July last year.

Bostic pointed out that he did not expect inflation to drop in a "straight line" to the 2% target set by the Federal Reserve, but rather to experience fluctuations. He said:

The biggest question at present is whether the January data represents a new trend or just short-term fluctuations. We will closely monitor the data for the next few months to ensure that we make the right judgments

The market expects a slowdown in the pace of interest rate cuts

After the release of CPI data in January, the market's expectations for a rate cut in 2025 have significantly decreased. Traders now anticipate that the Federal Reserve may only make one interest rate cut throughout the year, and the timing may be postponed until the end of the year. In contrast, the market had generally expected 2-3 interest rate cuts this year.

Despite weakened market confidence in interest rate cuts, Bostic still believes that the Fed's policy stance remains "restrictive" and has not been overly relaxed. He emphasized:

We are still in a state of austerity, and that is exactly what is needed at the moment

He also added that the current interest rate level of the Federal Reserve is sufficient to drive down inflation, but if new government policies lead to significant changes in the economic environment, the monetary policy path needs to be reassessed.

Trade policies or future policies affecting inflation are uncertain

Bostic also mentioned the possibility of a new round of tariffs, tax reforms, and industry regulatory easing measures implemented by the Trump administration, and stated that the impact of these policies is still difficult to predict.

He stated that some companies believe these policies may lead to an increase in inflation, while others believe they may promote investment and enhance productivity. Therefore, he believes that future policy changes will form a "mixed effect" that requires time to observe its specific impact.

In addition, Bostic specifically pointed out that consumers' tolerance for price increases has significantly decreased. Compared to the situation when the Trump administration first implemented tariffs in 2017, consumers' spending power is now more limited, and businesses may find it more difficult to pass on rising costs to consumers.

Editor's viewpoint:

Despite the inflation data exceeding expectations, the Federal Reserve remains cautious and has not clearly shifted towards a more aggressive policy stance. This indicates that in the uncertain global economic environment, the Federal Reserve hopes to maintain policy flexibility in order to respond to possible economic variables.

The current focus of the market is whether inflation data in the coming months will continue to rise, and whether the economic policies that the Trump administration may adopt will affect the direction of the Federal Reserve's monetary policy.

If inflation continues to rise, the Federal Reserve may postpone interest rate cuts and even reconsider the possibility of further tightening policy. If economic growth slows down and inflation falls, there is still room for interest rate cuts within the year. However, regardless, the Federal Reserve has stated that it will adopt a more cautious attitude and will not rashly adjust its policies.