U.S. inflation sticks as GDP revised lower, markets slide

U.S. inflation data released in January show a mixed picture that reinforces the Federal Reserve’s focus on the underlying pace of price gains. The broad personal consumption expenditures price index rose 2.8% from a year earlier, down 0.1 percentage point from December. The closely watched core PCE, which excludes energy and food, rose 3.1% over the year, up from the previous month, signaling that inflation remained more persistent when energy and food effects are stripped out.

The January read comes as the economy shows softer momentum in other areas. A government update on fourth-quarter activity revised annualized GDP growth to 0.7%, a sharp downgrade from earlier provisional figures. The revision reflected weaker consumer spending and slower business investment than previously reported.

Consumer sentiment also shifted in the wake of geopolitical tensions. The University of Michigan said the index tracking consumer confidence declined from the prior month, noting that an earlier improvement in sentiment before the Iran crisis gave way to a more cautious outlook after the conflict began. Inflation expectations among consumers were reported to have risen after the attack.

Oil markets kept prices elevated, with Brent crude hovering around $100 per barrel and West Texas Intermediate futures approaching the same level. Higher energy costs feed into the broader inflation picture and can influence consumer spending, household budgets, and corporate input costs—factors closely watched by policymakers and markets.

U.S. stock markets ended lower for the second consecutive session, underscoring investor concern about inflation persistence and the path of interest rates in a high-energy-price environment. The reaction comes as traders weigh the likelihood of policy tightening or shifts in monetary guidance in a volatile geopolitical backdrop.

RiverFront Chief Investment Officer Kevin Nicholson characterized the outlook as implying a low probability of rate cuts this year, saying the trajectory will hinge significantly on how long the current conflict persists. His comments reflect the broader market view that the Fed may need to tread carefully as inflation signals remain mixed and energy prices stay elevated.

Taken together, the data underscore why U.S. policymakers remain cautious about inflation control in a period of geopolitical risk and high energy costs. For American readers, the implications extend to mortgage and loan costs, corporate financing, consumer spending, and the resilience of supply chains that connect the United States with global energy and manufacturing markets.