Inflation Drops to 2.4% as Markets Price In Higher Odds of Fed Rate Cuts

The inflation pressure cooker finally eased its grip on American wallets. January’s Consumer Price Index rose 2.4% year-over-year, the slowest pace since May 2025. Core inflation, which excludes food and energy, came in at 2.5%, its lowest reading since Apr. 2021. Markets welcomed the cooler data, quickly lifting expectations for Federal Reserve rate cuts.

• Monthly price gains stayed muted at 0.2%, the smallest increase since July, led by a 1.5% drop in energy costs.
• Housing inflation eased, with shelter costs rising just 0.2% on the month and annual shelter inflation slipping to 3%.

Cutting to the chase: The soft inflation print pushed traders to price in faster Fed easing, with futures now showing 83% odds of a June rate cut. Treasury Secretary Scott Bessent told CNBC he expects inflation to return to the Fed’s 2% target “in the middle of this year,” while dismissing concerns that economic growth automatically sparks price pressures. However, Fed officials remain cautious on the labor market — signaling they want sustained progress before opening the monetary spigots.