Core CPI inflation eased; S&P 500 Futures Jump, Fed Rate-Cut Hopes Rise (Live Coverage)
December’s consumer price index showed that price pressures eased further More than expected. S&P 500 futures rose as Wall Street weighed CPI’s implications for Federal Reserve policy, as well as big earnings reports from the Dow Jones. JPMorgan Chase (JPM) and Goldman Sachs (GS).
Stubbornly high inflation poses a problem for the Federal Reserve and the S&P 500 as President-elect Donald Trump heads into office, as his policies are expected to contribute to higher prices this year. Going into this morning’s report, markets did not expect the next Fed rate cut to come before June.
This story is being updated with more information and analysis.
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Stocks mixed, below key levels; Sea, Howmet Aerospace, Argan in Focus
8:39 a.m. ET
CPI inflation details
Prices of primary goods rose 0.1%, despite a 0.5% increase in new vehicle prices and a 1.2% drop in used car and truck prices. For the third month in a row, core services prices increased by 0.3 percent.
Owner-equivalent rents, the largest component of core CPI, rose 0.3 percent. Hotel and motel rates unexpectedly fell by 1.2 percent.
8:37 am ET
Hopes for the future will jump, resulting in a fall
S&P 500 futures rose 1.4% in premarket trade, up from a 0.4% increase before the CPI inflation report.
The 10-year Treasury yield fell 10 basis points to 4.69 percent.
8:35 a.m. ET
CPI inflation is hit and miss
Overall CPI rose 0.4% month-on-month, above forecasts of 0.3%. That lifted 12-month headline inflation to 2.9%, in line with expectations.
Core CPI rose 0.2% as expected. However, the 12-plus core inflation rate suddenly dropped from 3.3 percent to 3.2 percent.
CPI inflation forecast
Wall Street economists expect the headline CPI to rise by 0.3%, which would raise the 12-month inflation rate to 2.9% from 2.7% in November, according to the Econoday Consensus estimate.
Core CPI, which strips out volatile food and energy prices, is expected to rise 0.2% after four monthly increases of 0.3%. The 12-month core CPI inflation rate is expected to remain at 3.3 percent.
CPI Vs PCE Inflation
The Federal Reserve views the core PCE price index as the core inflation rate. The main PCE price index, due out next January 31, gets about 70% of its movement from CPI inputs, with most of the rest coming from the producer price index released on Tuesday.
The good news from the PPI is that health care costs, the largest component of the core PCE price index, were unchanged in December. However, airline passenger service prices, which feed into the core PCE price index, rose 7.2 percent in the month.
Fed Rate-Cut Odds
Ahead of CPI, markets are only 3% ahead of a rate cut at the Jan. 29 Fed meeting, according to CME Group’s FedWatch tool. Markets see a 22% chance of a March 19 Fed meeting and a 35% chance of a May 7 rate cut.
The odds don’t support proportional cuts until the June 18 Fed meeting, and it’s still a close call: 56% to 44%.
For all of 2025, markets see a 64% chance of a reduction of no more than 25 basis points. That includes a 25% chance the Fed won’t cut for the rest of the year.
S&P 500
S&P 500 futures rose 0.4% in early Wednesday stock market action ahead of CPI. On Tuesday, the S&P 500 rose 0.1%, posting its second straight gain since Friday’s close at its lowest level since Trump’s election win.
The S&P 500 is down 4.1% from its Dec. 6 all-time closing high.
Be sure to read IBD’s The Big Picture column after each trading day to learn about current stock market trends and what that means for your trading decisions.
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