The "explosive" January CPI in the United States frightened away expectations of interest rate cuts, causing the US dollar to surge, and raising the possibility of a Federal Reserve rate hike again.

In January, the consumer price index (CPI) in the United States increased more than expected, strengthening the Federal Reserve's stance of not rushing to resume interest rate cuts as economic uncertainty continues to grow. Data released by the US Bureau of Labor Statistics on Wednesday showed that the non-seasonally adjusted CPI in January increased by 3% year-on-year, the largest increase since June 2024. The seasonally adjusted CPI in January increased by 0.5% month-on-month, the largest increase since August 2023. The seasonally adjusted core CPI in January increased by 0.4% month-on-month, the largest increase since March 2024. The BLS stated that nearly 30% of this increase was due to the rising cost of housing. It is understood that the report includes new weights for the consumer basket in order to more accurately reflect the consumption habits of Americans. The annual recalibration also revised the monthly data adjusted for five years of seasonality. The BLS updated the weights and seasonal adjustment factors, and the government uses this model to remove seasonal fluctuations from the data to reflect price trends in 2024. Analysis indicates that part of the reason for the increase in CPI in January may be due to companies raising prices at the beginning of the year and anticipating a comprehensive increase in tariffs on imported goods. Furthermore, Wednesday's report further demonstrated the risk of inflation reversing, coupled with a stable labor market, the Federal Reserve is likely to maintain interest rates unchanged in the foreseeable future. Policymakers are also waiting for further clarification on President Trump's policies, especially tariff policies, which have led to an increase in consumer inflation expectations. Earlier this month, US President Donald Trump announced a suspension of the 25% tariffs on Canadian and Mexican goods until March. Economists expect that these tariffs, once implemented, will boost inflation. Fed Chairman Powell also stated on Tuesday that inflation eased slightly last year, but recent developments have not been smooth, with inflation still above the central bank's 2% target. It is worth mentioning that a survey conducted by the University of Michigan last week showed that consumers' one-year inflation expectations skyrocketed to a 15-month high in early February as households believe it may be too late to avoid the negative impacts of tariff policies. This trend, along with a stable labor market, has led Bank of America Securities to believe that the Fed's loose policy cycle has ended. In January, the Fed kept its benchmark overnight rate unchanged in the range of 4.25%-4.50%, having already cut by 100 basis points since starting the easing cycle in September. After the release of the US CPI, financial markets reacted swiftly. The US dollar index rose by 50 points in the short term, reaching 108.43; spot gold fell by 12 US dollars in the short term, with a decline exceeding 1%, now at 2868.57 US dollars per ounce; US Treasury yields rose significantly, with the 10-year yield rising by 6.1 basis points to 4.602%. At the same time, non-US currencies generally fell, with the euro against the dollar EUR/USD falling by 40 points in the short term to 1.0333; the pound against the dollar GBP/USD fell by nearly 70 points in the short term to 1.2385; the dollar against the yen USD/JPY rose by nearly 120 points in the short term to 154.32. Traders' expectations of Fed policy have also changed. They now expect the Fed to reduce the degree of monetary easing and push back the timing of the next rate cut from September to December. They also expect the Fed's rate cut by December to be only 26 basis points, lower than the previous expectation of about 37 basis points, indicating that there may be only one rate cut of 25 basis points this year. Analyst Anstey provided a quick review of the US CPI data, believing that this is not good news for the Fed. This could lead to speculation that the next step in interest rates may be an increase rather than a decrease. This view is consistent with former US Treasury Secretary Summers and further exacerbates the uncertainty in the market about future interest rate trends.