10-year Treasury yield shoots above 4.6% after hot CPI report

U.S. Treasury yields rose sharply on Wednesday as investors reacted to the hotter-than-expected January consumer inflation report.

The 10-year Treasury yield jumped more than 9 basis points at 4.633%, while the 2-year Treasury yield rose 8 basis points to 4.37%.

Yields and prices move in opposite directions, and one basis point equals 0.01%

The consumer price index rose 0.5% in January, and is up 3.0% over the past 12 months, according to the Bureau of Labor Statistics. Economists surveyed by Dow Jones were expecting a monthly rise of 0.3% and a 2.9% increase year over year.

Core CPI, which excludes volatile food and energy prices, rose 0.4% for the month and 3.3% over 12 months. Economists had penciled in core price increases of 0.3% in January and 3.1% year over year, according to Dow Jones.

The hot inflation report could push expectations of the next Federal Reserve rate cut further into the future. The Federal Open Market Committee chose to keep rates unchanged last month after cutting in the previous three meetings.

“Today’s stronger than expected CPI release is likely to further cement the FOMC’s cautious approach to easing,” Whitney Watson, global co-head and co-chief investment officer of fixed income and liquidity solutions at Goldman Sachs Asset Management, said in a statement.

On Wednesday, Federal Reserve Chair Jerome Powell appeared before the House Committee on Financial Services and said January’s hotter-than-expected CPI data is a reminder that the Fed has made “great progress” towards bringing inflation closer to its 2% target but that it is “not quite there yet.”

Before the Senate Banking Committee on Tuesday, Powell said central bank policymakers “do not need to be in a hurry” to cut interest rates further. “We know that reducing policy restraint too fast or too much could hinder progress on inflation. At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment,” he said.

The producer price index will be published on Thursday.

Investors are also grappling with the potential effect of tariffs, as U.S. President Donald Trump signed an order on Monday to add a 25% duty on steel and aluminum imports.