Cooling US core inflation spurs market rally on Fed rate cut hopes
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The news: Cooling core US inflation in December 2024 surprised markets and reignited hopes for Federal Reserve rate cuts, as core CPI rose just 0.2%—below forecasts of 0.3%.
The numbers: Data from the US Bureau of Labor Statistics showed inflation rose 0.4% in December 2024, with annual inflation ending at 2.9%, driven in part by a 4.4% surge in gas prices.
That was up from 0.4% in November (2.7% annually) but was roughly in line with economists’ expectations cast by Bloomberg (0.4% and 2.9%) and the WSJ (0.3% and 2.9%).
Core inflation, excluding food and energy, increased 0.2% monthly and 3.2% annually, both below economists’ forecasts of 0.3% and 3.3%, respectively.
Categories driving inflation included airfares, medical care and rents, though hotel stays and car prices moderated.
The last inflation report of President Joe Biden’s tenure led to market rallies, with stocks and Treasuries rising, as traders increased bets for earlier and more numerous interest rate cuts this year.
What they said: Some economists told Bloomberg the report makes a cut in March a possibility, but most remain cautious, noting persistent price pressures in services and the need for sustained data to justify further rate cuts.
“The underlying inflation trends look very healthy. If it weren’t for these policies that look to be inflationary, I would think that the Fed would have reason to be pretty confident,” said former Fed economist and MacroPolicy president Julia Coronado.
Seema Shah, chief global strategist at Principal Asset Management said that “for the Fed, this is certainly not enough to prompt a January cut. But, if today’s print were accompanied by another soft CPI print next month plus a weakening in payrolls, then a March rate cut may even be back on the table.”
At Goldman Sachs, chief US economist David Mericle said: “We retain our confidence that inflation is headed in the right direction.”
The sources: US Bureau of Labor Statistics , The Wall Street Journal, Bloomberg
