Fed Won’t ‘Hurry’ as Inflation Runs HotFedWon’t‘Hurry’asInflationRunsHot

You can’t hurry rate cuts. That was the message from Federal Reserve Chair Jay Powell this week, as the central bank fights a seemingly unremitting battle with inflation. US consumer inflation picked up pace in January, hitting 3% for the first time since June. Core CPI also ticked higher to 3.3% from 3.2%. Yields on government debt jumped in reaction to the hotter-than-anticipated inflation report, which reinforced expectations that the Fed will move slowly as it considers future rate cuts. In his semiannual appearance before the Senate Banking Committee, Powell told lawmakers that “we don’t see any reason to be in a hurry” to reduce the Fed’s policy rate further, noting that officials want to see further progress on inflation. Meanwhile, the labor market appears to be on steady footing; the Labor Department said last week the US added 143,000 jobs in January, a weaker showing than expected but still enough to lower the unemployment rate to 4%.

Central banks are also weighing the impact of policy changes in the US, particularly related to trade. The Trump administration announced on Monday that it will impose a 25% tariff on steel and aluminum imports and eliminate exemptions that previously spared some trade partners. The prospect of a trade war and uncertainty clouding the economic outlook have kept markets on edge, with investors gauging potential implications for growth, inflation, and monetary policy. To help investors navigate this environment, PGIM Fixed Income’s Bond Blog lays out a probabilistic approach for contrasting fundamental views on policy rates with those priced in by markets.