Fresh inflation data released Wednesday is likely to keep the Federal Reserve on pause during its next policy meeting this month, even though a new reading did show some signs of easing.
On a “core” basis, which eliminates the more volatile costs of food and gas, the December Consumer Price Index (CPI) climbed 0.2% over the prior month, a deceleration from November’s 0.3% monthly gain. On an annual basis, prices rose 3.2%.
It was the first drop on a core basis after three months of being stuck at 3.3%.
“This latest inflation reading confirms a Fed rate cut skip at the January FOMC meeting,” said EY chief economist Gregory Daco.
The new print “won’t change expectations for a pause later this month, but it should curb some of the talk about the Fed potentially raising rates,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management.
The Fed next meets on Jan. 28-29, and investors are nearly unanimous in their view the central bank will leave rates unchanged after reducing them by a full percentage point in late 2024.
We are making progress on inflation, it’s just very slow,” former Federal Reserve economist Claudia Sahm told Yahoo Finance Wednesday. “Cuts are not coming later this month, but that doesn’t mean they aren’t coming later this year.”
Fed officials have been urging caution on rate cuts given a trend of stickier-than expected inflation data since past fall.
in fact, the Fed’s December meeting minutes showed officials believed inflation could take longer than anticipated to reach their 2% goal, citing risks from new trade and immigration policies expected from the incoming Trump administration.
They noted “the likelihood that elevated inflation could be more persistent had increased,” according to the minutes, even though they still expected the Fed to bring inflation down to its 2% goal “over the next few years.”
Several members of the Fed even said at that meeting that the disinflationary process may have stalled temporarily or noted the risk that it could.
The elevated inflation concerns help explain why Fed officials in December reduced their estimate of 2025 rate cuts to two from a previous estimate of four.
Inflation could show new signs of progress in year-over-year comparisons later in 2025’s first quarter since in 2024 inflation spiked back up before declining again.
Fed governor Michelle Bowman may be the most worried of the Fed officials, saying last week that she could have backed a pause in interest rates last month but supported a cut as the “last step” in the central bank’s “policy recalibration.”
