A further sharp acceleration in US inflation last month fuelled fears today that the Federal Reserve may be left badly hampered in its scope to make fresh cuts in interest rates to shore-up faltering growth in the world’s biggest economy.

Leading US shares tumbled in morning trading on Wall Street, falling by 77.60 points to 12,259.60, as the worse-than-expected official inflation figures combined with Monday’s renewed surge in oil prices above $100 a barrel stoked Wall Street anxieties over the Fed’s ability to fend-off a severe American downturn.

Surging costs for food, energy and health care triggered a steep 0.4 per cent jump in US consumer prices for a second month in a row in January, triggering a renewed leap in America’s headline inflation rate to 4.3 per cent, up from 4.1 per cent in December.

Even more worryingly for the Fed’s policy-makers, their preferred measure of “core” inflation, excluding energy and food costs also gathered steam, climbed to a 2.5 per cent annual rate last month - a 10-month high that left it far above the Fed’s preferred 2 per cent ceiling.

Economists on both sides of the Atlantic sounded warnings that persistent prices pressures in the US economy could leave the Fed restricted in responding to the threat of a recession that some analysts believe has already begun.

Ian Shepherdson, of High Frequency Economics in New York, said today's disappointing figures could mean that, after cutting rates by 1.25 percentage points last month alone, the Fed could now be forced to limit an expected further reduction on March 18 to a quarter-point - rather than the half-point move widely anticipated by the markets.

Paul Ashworth, of Capital Economics said that today's data “couldn’t have come at a worse time for the Fed”.

He said: “Persistently high inflation could take away the Fed’s flexibility to respond more aggressively to reduce borrowing costs, just at the time when it needs that flexibility the most.”

The threats confronting the powerful central bank was underlined still further today by the latest evidence of the dire toll from America’s housing market slump, and the intensifying squeeze on lending conditions from the credit crunch.

Despite the Fed’s forceful action in cutting official rates, the latest data shows that a drought in lending markets is still driving up the cost of borrowing for American companies and households.

For “prime” credit-worthy homebuyers, Capital Economics reported rates for 30-year fixed-rate mortgages have now risen to 6.09 per cent, up from only 5.5 per cent a month ago, and 5.72 per cent as recently as last week.

The interest rate on high-grade BAA-rated corporate debt has climbed, meanwhile, to 6.9 per cent, from 6.5 per cent a month ago.

“The credit crunch is entering a dangerous new phase, with even credit-worthy borrowers now affected,” Mr Ashworth said.

Worries over the outlook were compounded by the latest bleak housing market news, suggesting that the slump is continuing to deepen.

The number of permits issued for new residential construction in the United States dropped by a further 3 per cent in January, to an annual equivalent of 1.048 million - the lowest figure for more than 16 years.

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