US inflation slowed to 2.4% and came in below expectations. What will happen to the rate?

Consumer Price Index (CPI), which reflects the dynamics of the cost of goods and services in the U.S. economy, in January rose by 2.4% year-on-year and 0.2% relative to the previous month. This is below the consensus forecast of Dow Jones, which suggested growth of 2.5% and 0.3%, respectively, writes CNBC.

In December, the CPI was 2.7%. The previous peak value of the index was recorded in September, when it exceeded 3%.

The core CPI, which excludes volatile food and energy prices, added 2.5% for the year and 0.3% for the month. This was in line with Wall Street forecasts.

The housing index rose 0.2% in January and was the main driver of the month-over-month increase in the overall index. The food index increased 0.2% for the month, including a 0.2% increase in the food for home consumption index and a 0.1% increase in the food outside the home index. These increases were partially offset by a 1.5% decline in the energy index in January.

A return of inflation to the 2.5% level would be consistent with price dynamics before the coronavirus pandemic, Tom Lee, head of research at Fundstrat Global Advisors, said before the publication. "These are 'normal' inflation conditions, even with the effects of duties still reflected in the statistics," Lee wrote. With the federal funds rate now in the 3.5-3.75% range - well above pre-pandemic levels - "there remains significant downside potential for the Fed," he said.

"While such an outcome is unlikely to revive expectations for a Fed rate cut at the March meeting - even abstracting away the impact of one-off factors - the case for further easing in the longer term remains strong," MarketWatch quoted Commerzbank fixed income strategist Rainer Guntermann, who also commented on expectations for inflation to slow to 2.5%.

Prior to the release of January's inflation data, traders, according to market sentiment monitoring tool FedWatch, estimated the probability of the interest rate remaining at current levels following the Fed's March 18, 2026 meeting at about 92%.

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