Inflation Spikes, Cut in Jeopardy

Fed may have hands tied, as CPI soars past expectations
By Kevin Spak,  Newser Staff
Posted Feb 20, 2008 9:04 AM CST
A currency exchange sign hangs on a street in Hong Kong, Thursday, Jan. 31, 2008. (AP Photo/Kin Cheung)   (Associated Press)
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(Newser) – Core inflation bounded ahead of expectations in January, which is bad news for anyone betting on a big rate cut from the Fed–and for the Fed itself. The consumer price index rose 0.4%, with core CPI rising 0.3%, putting the year-over-year figures at 4.3% and 2.5% respectively, well above the Fed’s traditional 1.5%-2% comfort zone, the Wall Street Journal reports.

Investors have been expecting a half-point rate cut next month, on top of the 225 basis points slashed since September, but this data will force investors to reconsider, and certainly dashes any hopes of a bigger move. In another report, housing starts rose in January, for the first time since October, but the numbers were still lower than analyst predictions.