U.S. inflation came in higher than expected in January, with the Consumer Price Index (CPI) rising 0.3% for the month and 3.0% over the last year. Core CPI, excluding food and energy, rose 0.4% in the month and year over year up 3.3%. Estimates for Core CPI were 0.3% and 3.1%. Shelter costs rose 0.4% in the month, accounting for 30% of the increase. Stock markets fell on the news and bond yields rose in response. CPI January 2025 | CNBC
President Trump has called for interest rates to be lower, though with continued inflation it is unlikely the Federal Reserve will cut interest rates until the data weakens. Trump has extended less pressure on Jerome Powell and the Federal Reserve than initially expected. This may be due to Trump’s focus on reducing the 10-year interest rate versus short-term interest rates. The Federal Reserve has more control over short-term interest rates; however, the 10-year interest rate is set by the bond market. Trump’s Treasury Secretary Scott Bessent is focused on reducing the 10-year rate, which is more closely tied to long-term borrowing rates like mortgages. Bessent's Focus on 10-year US Treasury Yield | Reuters
Factors that impact the 10-year Treasury are more complicated:
- U.S. Treasury issuance and debt supply: This is the amount of Treasuries based on the amount of borrowing by the U.S. government. The Treasury can adjust how it finances the debt, whether they issue short-term or longer-term debt. Bessent was critical of Janet Yellen, Biden’s Treasury Secretary, for issuing too much short-term debt but admits that issuing more long-term debt now would result in higher interest rates at the long end of the curve as markets demand higher interest rates in the face of more supply.
- Market Expectations for Inflation: Higher inflation expectations will be met with the market demanding higher interest rates to compensate them. Investors want to ensure the interest payments they receive on the debt owned keep up with inflation.
- Global Economic Conditions: U.S. Government debt is considered a safe haven in periods of economic duress. In an economic slowdown, market participants tend to flock to long-term Treasuries, reducing the supply and lowering interest rates investors demand.
A Renter’s Market? Rents have decreased in the United States since peaking in July 2022. Newly built apartments have increased the supply of units and property owners have decreased rents to entice tenants. With mortgage interest rates elevated, the affordability of buying a new home with a mortgage has decreased. This advantage for renters may not last long as construction of multi-family housing slowed in 2025 and likely will continue to slow with rents falling. The 2025 Renter's Market Won't Last | CNBC
January Jobs Report: January’s job report came in lighter than expected, adding 143,000 jobs versus an anticipated 175,000. There were revisions upward to job numbers in November and December. Healthcare and government sectors led the gains in January, while construction and manufacturing added only 73,000 jobs in the past year. Average hourly earnings increased 4.1% overall in 2024, pointing to a healthy jobs economy. January US Jobs Report: 143K New Jobs Added, Falling Short of Expectations | J.P. Morgan
Financial Planning/Investment Strategy Corner:
Strong Dollar, Currencies, and Central Banks: With the focus on interest rates and inflation, it’s important to consider the impact on currency markets for investors. A higher dollar will reduce U.S. investor returns for international investments because the foreign currency will pay less in dollars as the foreign currency depreciates. A higher dollar can also reduce the price of commodities like gold and oil because they are priced in dollars, whereas a weakening dollar may make them more expensive for U.S. consumers. Where this ties into interest rates is if inflation remains high in the U.S., the Federal Reserve will be less likely to lower interest rates. Central banks around the world (excluding Japan) have been cutting interest rates recently. With the U.S. holding interest rates higher compared to other central banks, foreign investors will continue to want to own dollar-denominated debt for a higher rate of return, pushing the value of the dollar higher as demand grows. Global central banks are cutting rates, now what? | The Star
This site provided an interesting look at how the dollar has performed during different presidential administrations since 1967: How the U.S. Dollar Has Performed, by President (1967-2025)
The graph may not be entirely based on how a president’s policies impacted the dollar throughout the course of their administration, where the dollar may appreciate and depreciate because of the expectations leading up to the next administration. Additionally, any dollar movement, higher or lower, may be more tied to economic factors, like when George W. Bush left office during the Sub Prime Crisis.
As for the current administration and policies that may impact the dollar, tariffs have a potential impact on the dollar too, where higher prices for international goods may lead to fewer good purchases and less international currency, pushing the dollar up further. This may reduce the administration’s effectiveness in bringing manufacturing and other sectors back to the U.S. with the strong dollar making them more expensive.
Quick Hits:
- In honor of Valentine’s Day: Love rats: Canadians get chance to feed rodents named after old flames to owls | Canada | The Guardian
- A different type of government efficiency: These eager beavers saved the Czech government $1.2 million
- My wife is an Archaeologist, so I am compelled to share this: For Centuries, Indigenous People Lived in These Desert Canyons. Now, New Technology Reveals Extraordinary Details About This Sacred Site | Smithsonian
Quote: “What I discovered I liked best about striking out on my bicycle was that the farther I got from home, the more interesting and unusual my thoughts became.” – Richard Russo
And of course Ottilie:
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