U.S. stocks stumbled out of the gate as inflation fears re-gripped the market.

Overall annual consumer prices rose 3% in January from 2.9% the previous month, according to the Labor Department’s consumer price index, a measure of goods and service costs across the U.S. That's the most since June and above the 2.9% expected by economists surveyed by Bloomberg. On a monthly basis, costs jumped 0.5% - the most since August 2023 - up from 0.4% in December.

And it wasn't just the cost of eggs and other food stuffs driving inflation. Stripping out the volatile food and energy sectors, the so-called core rate in January climbed 0.4%, a 10-month high, following a 0.2% bump the prior month. That pushed the annual increase to 3.3% from 3.2% the previous month. Used cars, shelter and transportation cost increases also played a role in quickening price growth for the month, noted Elizabeth Renter, senior economist at NerdWallet.

"If signals of ongoing inflationary pressure continue, particularly in the midst of potentially inflationary policies, a rate hike wouldn’t be completely out of the question this year, and further cuts less likely anytime soon," Renter said. The Federal Reserve "paused their rate cuts as inflation progress seemed to slow, and while there isn’t a definite case for inflation climbing again, it’s also becoming more difficult to say that it’s moving in the right direction."

Around 10 a.m. ET, the broad S&P 500 index dropped 0.73%, or 44.59 points, to 6,023.91; the blue-chip Dow fell 0.88%, or 393.88 points, to 44,199.77; and the tech-heavy Nasdaq shed 0.75%, or 147.11 points, to 19,496.75.

Capitalize on high interest rates: Best current CD rates

The benchmark 10-year Treasury yield shot up to 4.651% as prospects fade for lower rates any time soon.

What does Fed Chair Powell say about the surprise inflation data?

Fed Chair Jerome Powell is slated to testify before the House at 10 a.m. ET, and will likely be asked that question.

On Tuesday, he repeated to the Senate that the Fed was in no hurry to lower rates again. More of that is expected on Wednesday, especially after this morning's hotter-than-expected inflation report.

Though Powell's unlikely to signal that rate cuts are over, more economists are penciling that in now and looking for signs or comments to confirm that to be the case.

"Prices jumped more than expected and in a broad-based fashion which is consistent with yesterday’s comments from Chair Powell that the Fed is not 'in a hurry' to adjust interest rates," said Josh Jamner, investment strategy analyst at ClearBridge Investments, who believes the Fed's pause on rate cuts will now be "longer than anticipated."

"This report puts the final nail in the coffin for the rate cut cycle, which we believe is over," he said. "Should this month’s hotter and broader reading portend a resurgence in inflation in the coming months, the Fed could end up needing to raise interest rates in the second half of 2025."

Corporate news

While the market digests the hot inflation report, company news continues to flow. Morning movers include:

• CVS topped earnings estimates in the final three months of last year and expects to meet analysts' expectations for the full year. The pharmacy chain's shares jumped 14.26%.
• Restaurant Brands' same-store sales grew 2.5% in the last three months of the year, boosted by Burger King and Popeye's sales. Shares slipped 1.09%.
• Biogen's fourth-quarter results beat analysts' expectations, reaping benefits from cost cuts and its Alzheimer's drug. However, its full-year earnings outlook fell short of analysts' forecasts. Shares fell 6.33%.
• Kraft Heinz's sales fell 4.1% in the last three months of the year from the prior year period. Sales for the period missed analysts' forecasts even as earnings per share beat. Shares dropped 4.63%.
• Super Micro Computer stock soared 7.78% after the company issued a bullish sales outlook for its fiscal 2026 year.
• Ride-share company Lyft reported disappointing booking numbers in the last three months of the year, saying people were taking fewer and shorter rides. Shares tumbled 6.36%.
• DoorDash grew its food delivery business last quarter and said it expects strong growth in coming months. Shares added 2.58%.

Earnings from Robinhood, Cisco and Reddit are expected after the market close.

Bitcoin

Bitcoin dipped, still hovering below the key psychological $100,000 milestone.

However, underlying support remains for the cryptocurrency as state interest grows.

Florida Senator Joe Gruters proposed a bill to allow the state’s Chief Financial Officer to invest up to 10% of state reserves in bitcoin. These reserves include the General Revenue Fund and other trust funds.

North Carolina lawmakers are considering a bill that would allow the State Treasurer to invest up to 10% of state funds in Bitcoin exchange-traded products (ETPs), potentially exceeding $10 billion.

Both proposals, if passed, could help improve liquidity in the crypto market, analysts said.

Bitcoin was last down 0.25% at $95,622.54.

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and  subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.