Annual inflation jumped to 3% in January, surpassing the previous month's 2.9%, driven by core inflation rising 3.3% alongside increasing costs in transportation, housing, and medical care. The spike in inflation prompted a surge in Treasury yields and indicated that mortgage rates would likely rise, impacting potential homebuyers. The Federal Reserve paused rate cuts in light of strong labor market data and inflation's upward trend, which complicates efforts to reach their target inflation of 2%. This comes amid promises from the new administration to reduce consumer prices, creating additional pressure from rising costs.
So-called core inflation, excluding volatile food and energy prices, jumped 3.3% on the year, driven by rising costs in areas like car insurance, medical care, and airline fares.
The Fed aims for a 2% annual inflation rate, and it will likely maintain higher interest rates as inflation runs hotter than its target, discouraging rate cuts.
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