Rate Cuts Might Be Delayed. That’s No Reason to Panic.

How much does it matter if the Federal Reserve starts cutting rates in June instead of May?

Not much to the broader economy, or even to investors. But that sure isn’t how they reacted to Tuesday’s consumer-price-index report. The Dow was down as much as 750 points by midafternoon and it closed 525 points, or 1.4%, lower. The more rate-sensitive Russell 2000 index of small-capitalization stocks plunged 4%, and the yield on 10-year U.S. Treasury notes rose to its highest since November.

All this was because inflation in January as measured by the Labor Department came in stronger than expected, rising 3.1% from a year earlier, compared with economists’ expectations for a 2.9% pace. As a result, the most likely date for the Fed’s first interest-rate cut has moved, in traders’ estimation, to policymakers’ meeting on June 12 instead of May 1, according to the CME Group’s FedWatch Tool that tracks movements in fed-funds futures.

Some perspective is needed: January’s figure was still down from December’s 3.4% pace, and the slowest reading since last June. And yes, the core inflation rate stripping out food and energy, at 3.9% in January, was unchanged from December. But one month in which core inflation failed to slow hardly seems cause for panic. Just six months earlier, in July 2023, core inflation was running at 4.7%.

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