Doubts About Rate Cuts Creep In After Stubborn January Inflation

"Higher for longer" may have a different ring to it in the light of January's inflation reports.

Traders remain nearly certain the central bank will cut its benchmark interest rate this year. Markets are pricing in a 99.5% chance of at least one rate cut by December, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.

But not everyone is as certain.

Tom Barkin, CEO of the Richmond Fed and a member of the central bank’s policy committee, may have poured cold water on that certainty Friday when asked whether a rate cut was coming in 2024 on CNBC's Squawk Box show.

“We'll see,” he said.

While there are still good reasons to believe that inflation is on a firm downward trajectory, doubts are starting to creep in. Rate cut expectations were rattled last month by a pair of government reports showing inflation stayed higher in January than forecasters had predicted.

More persistent than expected inflation could cause the Fed to hold its benchmark interest rate at its current 23-year high, or even raise it again, in hopes of slowing the economy enough to bring it under control.

Read more here about who is doubtful there could be a rate cut this year.

Inflationary Pressures Continue to Push on Consumer Product Companies

Persistently high prices and rising labor costs are cutting into margins for some of the largest U.S. companies as inflation continues to weave its way through the economy. Inflation has been declining since its highs in 2022, but it’s still above the Federal Reserve’s target rate of 2%. Corporate executives have been talking about price pressures on their earnings calls, whether it's fewer customers wanting to pay elevated prices or higher costs affecting bottom lines.  Companies that sell consumer products such as Kraft Heinz, Pepsico and McDonald's all reported persistent inflationary pressures in their last earnings call, resulting in lower business.

Read more about what executives said regarding inflation here.