Here’s why the Fed cares about the cost of your haircut and doctor’s visit

America’s inflation problem has improved greatly, but it’s proving to be stubborn when it comes to services. That means the Federal Reserve, which is tasked with stabilizing prices, could keep interest rates higher for longer if the rising cost of your haircut and doctor’s visit doesn’t slow soon.

America’s inflation problem has improved greatly in some respects — but it remains stubborn for the price of services.That means the Federal Reserve, which is tasked with stabilizing prices, could keep interest rates higher for longer if the rising costs of your haircut, your doctor’s visit and other services don’t abate soon. Price growth has slowed steadily over the past year but it’s been a bit of a bumpy ride. For example, inflation in January didn’t slow as much as investors were expecting, largely due to persistent price pressures in housing and services. Overall, consumer prices rose 0.3% in January 2024 from December 2023, according to the latest Consumer Price Index. That’s the biggest monthly increase since September. Inflation of goods continued to slow. But spikes in services costs were significant enough to bring overall consumer prices higher: Medical care services costs rose by 0.7%, as did the price of haircuts. Insurance and financial services also pushed inflation higher. These trends were echoed in the Fed’s preferred inflation gauge — the Personal Consumption Expenditures price index — within the report, which similarly showed that services prices were stable at the beginning of the year. January’s disappointing inflation readings prompted investors to recalibrate their expectations on rate cuts. At one point, Wall Street had high hopes that rate cuts would begin this month and that the Fed could cut rates as much as six times this year. Those expectations have been thrown out the window.