A new inflation reading will keep the Fed on hold for the time being
Fresh inflation data released Wednesday could keep the Federal Reserve on hold at its next policy meeting this month, although a new reading showed some signs of easing.
On a “core” basis, which strips out more volatile costs of food and gas, December’s consumer price index (CPI) rose 0.2% from the previous month, down from November’s 0.3% monthly gain. Prices rose 3.2 percent year-on-year.
It stuck at 3.3%, which was the first drop on a major basis in three months.
“This latest rate hike justifies the Fed’s rate cut jump at the January FOMC meeting,” said Gregory Dako, chief economist at EY.
Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said the new publication won’t change expectations for a pause later this month, but should dampen some talk of a possible Fed rate hike.
The Fed will meet investors next January 28-29. They are almost identical in their views. In the year At the end of 2024, the central bank will leave rates unchanged after cutting them by a whole percentage point.
“We’re making progress on inflation, just very slowly,” former Federal Reserve economist Claudia Sahm told Yahoo Finance on Wednesday. “The cuts will not come later this month, but that does not mean they will not come later this year.”
Federal officials have urged caution on rate cuts since last fall, as inflation has tended to stick higher than expected.
Indeed, minutes of the Fed’s December meeting cited concerns over new trade and immigration policies expected from the incoming Trump administration, with officials admitting inflation may take longer than expected to reach their 2% target.
“Over the next few years,” he said, while he expected the Fed to lower inflation to its 2% target, “the likelihood of higher inflation becoming more sustained has increased.”
Several members of the Fed said at that meeting that inflation had either stalled for the time being or was at risk.
Elevated inflation concerns help explain why Fed officials in December cut their 2025 rate cut estimate to two from a previous estimate of four.
In the year Year-on-year comparisons may show new signs of growth after the first quarter of 2025, before inflation declines again in 2024.
Fed Governor Michelle Bowman said last week that she would support a freeze on interest rates, saying she supported the cut as the “last step” in the central bank’s “policy overhaul” and that Fed officials may be worried.