According to the Bureau of Labor Statistics, services Inflation in the United States decreased slightly to 4.94% in January of 2024 from 4.95% in December of 2023. In the US, services inflation accounts for almost 57% of the Consumer Price Index (CPI).

Global X Senior Portfolio Strategist Michelle Cluver joins Yahoo Finance to discuss why she believes inflation in services remains one of the biggest risks to the Federal Reserve's interest rate cut forecasts.

Cluver gives insight into how she gets to her stance: "We've been seeing really good disinflation in the goods areas. But, the services areas remain too hot and if we think about concerns about wage price and spirals, that's really in the services area. So from the sustainability of the inflation trend, getting that disinflation into services is key. Thinking about the FOMC minutes from the January meeting, there was a lot of focus on what the Fed was saying in terms of both level as well as trend. I believe they're really focused on seeing an improving trend and the sustainability of that trend."

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Editor's note: This article was written by Nicholas Jacobino

Video Transcript

- Our next guest says inflation in services remains the biggest risk to interest rate cuts. To break it down for us, Michelle Cluver, Global X senior portfolio strategist joins us this morning. Michelle, good to talk to you today.

When you look at where those services and inflation came in, up 0.7% in January compared to the 0.4% in December. Big chunk of that was in real estate. To what extent has that changed your outlook on the Fed or where you think the Fed is going to move?

MICHELLE CLUVER: It hasn't changed my trajectory or views on it yet. Obviously, one hot data print doesn't make a trend. Also, with it being January data, this can be impacted by some more seasonality factors.

But we are certainly keeping an eye on future inflation prints because we really do want to see disinflation moving into the services areas. And particularly, into that shelter component that you mentioned.

- So is service inflation, is that what's going to be that makes or breaks this ability to get down to that 2% target and finally get inflation off the Fed's back?

MICHELLE CLUVER: I fully believe that. We've been seeing really good disinflation in the goods areas. But the services areas remain too hot.

And if we think about concerns about wage-price and spirals, that's really in the services area. And so from the sustainability of the inflation trend, getting that disinflation into services is key. And thinking about the FOMC minutes from the January meeting, there was a lot of focus on what the Fed was saying in terms of both level, as well as trend. And I believe that they really focused on seeing an improving trend and that the sustainability of that trend.