US inflation ticks up again — dimming prospects for significant Fed cuts this year
US consumer prices showed no signs of cooling in December amid higher costs for energy goods — pointing to still elevated inflation that aligns with the Federal Reserve’s projections for fewer interest rate cuts this year.
The consumer price index rose 0.4% last month after climbing 0.3% in November, the Labor Department’s Bureau of Labor Statistics said on Wednesday. In the 12 months through December, the CPI advanced 2.9% after increasing 2.7% in November.
Economists polled by Reuters had forecast the CPI gaining 0.3% and rising 2.9% year-on-year.
Progress bringing inflation back to the U.S. central bank’s 2% target hit snag in the second half of last year.
However, one bright spot last month was that core CPI — which excludes food and energy –was 3.2%, a notch down from the month before and slightly better than the 3.3% forecast.
The better-than-expected core CPI data sent Dow Jones futures surging by more than 600 points before Wednesday’s opening bell.
According to the Bureau of Labor Statistics, inflation eased in categories such as personal care, communication, and alcoholic beverages, which saw price decreases over the month.
Prices increased for rent, airfares, new and used cars and trucks, medical care and motor vehicle insurance.
Energy appeared to be the primary driver of the headline increase, contributing over 40% to the monthly rise in all-items. The gasoline index surged by 4.4% for the month.
The resilient economy, threats of broad tariffs on imported goods and mass deportations of undocumented immigrants — actions that are deemed inflationary — have led the US central bank to project a shallower rate-cut path this year.
President-elect Donald Trump’s incoming administration has also pledged tax cuts, which would juice up the economy.
No rate cut is expected at the Fed’s Jan. 28-29 policy meeting. While economists see fewer rate cuts this year, they are divided on whether the central bank will reduce borrowing costs again before the second half of the year.
Goldman Sachs expects two rate cuts this year, in June and December, a number revised down from three. Bank of America Securities believes the Fed’s easing cycle is over.
The central bank launched its easing cycle in September and has lowered its benchmark overnight interest rate by 100 basis points to the current 4.50%-4.75% range.
The last reduction was in December when policymakers also projected two rate cuts this year instead of the four they had forecast in September. The policy rate was hiked by 5.25 percentage points between March 2022 and July 2023.
