Inflation cooled slightly in January, but not enough for the Federal Reserve Board to reconsider its plan to continue to raise interest rates anytime soon.

The consumer-price index, which measures the price change for a basket of goods and services of the average household, climbed 6.4% in January from a year ago, the Bureau of Labor Statistics reported Tuesday, a tick lower than the 6.5% figure for December. This is the smallest one-year increase since October 2021.

Tuesday’s CPI report reveals that the inflation annual rate is too high because of continuing pressure from products and services, including housing, apparel, car insurance and groceries. All this makes it much harder for the Fed to reduce inflation without sending the economy into a recession.

“Fed is sending two messages here: One is they’re not done hiking; and, the other is they’re going to hold rates longer,” said Jonathan Millar, senior economist at Barclays Capital.

Inflation hit a peak mid-last year at 9.1% annual rate, the highest since 1981. The record-breaking inflation figures launched the Fed to aggressively increase interest rates to cool the economy. But the latest job report–which showed that 517,000 jobs were added in January–shows a vigorous labor market.

On a monthly basis, the CPI rose 0.5% in January from December, up from the previous reading of 0.1%. 

Fed officials and economists keep a closer eye on the core CPI, which removes food and energy prices out of the average household basket, which rose to 5.6% in January from a year earlier, sliding down from a 5.7% gain in December.  On a monthly basis, the core index climbed 0.4% last month, which matched its pace in December. 

Millar says the easing of inflation is not as pronounced as in prior months because prices for core goods and services have continued to go up. For example, he’s surprised to see household furnishing indexes go up because demand for those products has declined as consumers return to spending more money on services.

Other core products and services have helped the CPI index to remain high: rent of primary residence rose to 0.7%; auto repairs ticked up to 1.3%; and apparel climbed 0.8%.

The Fed lifted the federal fund rate from near zero a year ago to 4.5%. Earlier this month, the central bank reduced the size of the interest rate increase from a half point to a quarter point. Economist Peter Morici at the University of Maryland said the Fed should have kept increasing rates by half a point to better tame inflation.

“I was disappointed that they went down to a .25 percentage increase. It was premature to do that.”

Both economists agree a recession is possible in the second half of the year, but for different reasons. Millar says if the Fed has to combat high wage growth, then it would most likely push the economy into a recession. That would only happen if the Fed continues its 2% agenda, according to Morici.

How will a recession impact Americans? Morici says there are going to be more layoffs and hardships.

“But that’s the price we pay for printing all that money,” Morici said.