New inflation reading likely keeps the Fed on pause for now
Latest inflation data The Federal Reserve is likely to keep the rate on hold at its next policy meeting this month, released Wednesday, although the new reading showed some signs of easing.
On a “core” basis, which strips out more volatile food and gas costs, December’s consumer price index (CPI) rose 0.2% from the previous month, slowing from a 0.3% monthly gain in November by 3.2%.
It was the first decline on an underlying basis after three months of 3.3%.
“This latest wheat reading confirms the Fed’s interest rate cut at the January FOMC meeting,” said Gregory Dako, chief economist at EY.
The new print “won’t change expectations for a pause later this month, but it should quell some talk that the Fed could raise interest rates,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management.
The Fed’s next meeting will take place on January 28-29, and investors they are almost unanimous in their opinion The central bank will leave interest rates unchanged after reducing them by a full percentage point at the end of 2024.
“We’re making progress on inflation, it’s just very slow,” former Federal Reserve economist Claudia Sahm told Yahoo Finance on Wednesday “.
Read more. How the Fed’s rate decision affects your bank accounts, loans, credit cards and investments
New York Fed President John Williams said after the CPI release that “while I expect disinflation to make progress, it will take time and the process may be volatile.”
The economic outlook, he added, “remains highly uncertain, particularly around potential fiscal, trade, immigration and regulatory policies,” referring to potential changes that could occur as part of the incoming Trump administration.
Many Fed officials in recent weeks have called for caution on future rate cuts.
In fact, minutes from the Fed’s December meeting indicated that officials believed inflation could take longer than expected to reach their 2% target, citing stickier-than-expected inflation data from last fall and the fallout from Trump 2.0’s new policies. risks incurred.
They noted that “the likelihood that high inflation could be more persistent has increased,” according to the minutes, although they still expected the Fed to reduce inflation to its 2% target “over the next several years.”
Several Fed members even said at that meeting that the disinflation process could be temporarily halted or noted the risk that it could.
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