Fed seen deferring rate cuts as inflation stays elevated


FILE PHOTO: An eagle tops the U.S. Federal Reserve building’s facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst/File Photo

(Reuters) -Federal Reserve policymakers looking for more evidence that price pressures are easing got little of that on Tuesday, after a government report showed consumer inflation ran higher than expected last month.

The consumer price index rose 3.1% in January from a year earlier, down from its 3.4% pace in December but more than the 2.9% economists polled by Reuters had been expecting. Underlying core inflation, which strips out energy and food prices, rose 3.9% from a year earlier for a second straight month.

Driving inflation’s strength was an acceleration in shelter costs.     Traders of futures contracts tied to the Fed’s policy rate were quick to bet the news means it will be June before the Fed policymakers get enough confidence in inflation’s downward trajectory to start cutting rates. They had been betting on rate cuts to start at the Fed’s April 30- May 1 meeting.

“If this keeps up with another month or two of inflation staying high, you can kiss a June (rate cut) goodbye and we’re probably looking at September,” said Peter Cardillo, chief market economist at Spartan Capital Securities. «“It’s a hotter-than-expected report and it’s part of what the Fed has been alluding to when it says it’s too early to say that inflation has been beaten.”

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