Services Inflation Sticks Around Despite Some Progress, Keeping Fed Rate Hikes in Play

• Inflation improved in some areas but remains high for services like healthcare and haircuts, so the Fed may keep interest rates higher for longer • Inflation rose 0.3% in January, more than expected, due to spikes in medical, haircut, insurance, and financial services costs
• Investors now expect fewer Fed rate cuts this year compared to early 2023 expectations due to sticky services inflation • Persistent services inflation and a still-strong economy means the Fed likely won’t rush to cut rates and risk losing credibility
• Disappointing future inflation data could lead markets to fall if it causes expectations for rate cuts to be pushed further out