Investors worry about higher than expected U.S. inflation

The U.S. inflation rate fell slightly in January, from 6.5% to 6.4%. However, inflation remains higher than expected, which has investors worried that the U.S. central bank will continue to raise the benchmark federal funds rate.

U.S. inflation remains high, causing market uncertainty

Inflation in the United States exceeded analysts’ and economists’ expectations for January 2023. The U.S. Department of Labor released the Consumer Price Index (CPI) on February 14, which measures the value of goods and services across the country. From December 2022 to January 2023, the rate increased from 6.5 percent to 6.4 percent. However, over the 12-month period, prices increased by 0.5 percent.

In addition, the core CPI rose 0.4 percent over the month and 5.6 percent from a year earlier. According to the U.S. Department of Labor, “the housing index was the largest contributor to the monthly increase in all items, accounting for nearly half of the increase, with the food, gasoline, and natural gas indices also contributing.“The latest inflation report has investors worried that Federal Reserve Chairman Jerome Powell will continue to raise rates.

At the last Federal Open Market Committee (FOMC) meeting, the Fed appeared dovish and only raised the federal funds rate by 0.25%. Powell stated that the central bank has been monitoring the “disinflation process“, but stressed that it was still early. “Disinflation is expected to disappear quickly and painlessly, but I don’t think it’s guaranteed” said Jerome Powell, the Fed president, at an event last week.

Following the Labor Department’s CPI report, stocks, precious metals and crypto-currencies fell slightly, but have since rebounded. As of 9:30 a.m. Eastern time on Tuesday, all four U.S. stock benchmarks (DJIA, SPX, COMP, RUT) are in positive territory.

Similarly, the crypto economy is recovering after experiencing some volatility immediately following the CPI release, and is up 0.7% today. While silver is down 1.23% as of this writing, the price of an ounce of gold is up 0.18% according to the CPI. New York spot prices on Tuesday.