A key inflation measure released Thursday showed that prices are climbing at the fastest pace in 40 years and broadening to touch nearly every corner of the American economy, heightening the risk that they will stay elevated for longer and that policymakers may have to react more aggressively.
Markets tumbled after the government released Consumer Price Index data for January, which showed prices jumping 7.5% over the year and 0.6% over the past month, exceeding forecasts. More worrying were the report’s details, which showed inflation moving beyond pandemic-affected goods and services, a sign that rapid gains could prove longer lasting and harder to shake off.
Investors speculated that the hot inflation would spur a decisive reaction from the Federal Reserve — possibly a big interest rate increase at the central bank’s next gathering in March, though few Fed officials have signaled comfort with such a large move. Making money more expensive to borrow and spend could weigh on demand, slowing the economy and tamping down prices.
Wall Street is now anticipating that interest rates could rise to more than 1.75% by the end of the year, up from near zero now, and the possibility of a more forceful Fed reaction sent a key bond yield above 2% for the first time since July 2019 and deflated stock prices.
