Despite all of the economic tightening by the Federal Reserve to bring down inflation, the opposite happened in January, according to the latest data from the Bureau of Economic Analysis. The Personal Consumption Expenditures index, the Fed’s preferred inflation gauge, was up 5.4% from a year ago, a hair higher than December’s 5.3%.

That December figure was also revised up from 5%, showing prices of goods and services rose faster in December than previously reported. Meanwhile, the monthly price for goods and services climbed 0.6% in January, the largest monthly gain since last summer.

This data follows the consumer price report — which showed inflation barely slowed in that data set — and a shockingly strong jobs report for January.

So what does this mean beyond inflation being stubbornly high? The market consensus is higher interest rates.

The Fed hiked its benchmark interest rate for the eighth time in a year earlier this month. And at a 25-basis point increase, it was the smallest hike since the Fed started its campaign in March 2022.

But minutes from the latest meeting released this week showed some committee members favored a larger 50-basis point rise in the rate.

“The participants favoring a 50-basis point increase noted that a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance, taking into account their views of the risks to achieving price stability in a timely way,” the minutes read.

As it stands following February’s 25-basis point increase, the federal funds target range sits between 4.5% and 4.75%. This is the interest rate banks pay for overnight lending, but the rise and fall directly impact consumer interest rates. The Federal Open Market Committee has repeatedly said they believe the rate will need to climb higher than 5% and hold there in an effort to bring down inflation.

The committee meets again in one month to revisit the interest rate, attempting to balance restrictive economic policy to curb consumer spending in hopes prices fall, and maintaining strong employment to avoid a recession.

What’s the difference between CPI and PCE and why does the Fed prefer the latter? Click here to learn more.