In December, US inflation continued to cool down. It added evidence price pressures have peaked and put the Fed on track to downshift. This is to slow the pace of interest-rate hikes. According to a Labor Department report, the overall consumer price index fell 0.1% from the prior month, with cheaper energy costs indicating the first decline in 2 ½ years. From a year earlier, the measure was down to 6.5%, being the lowest since October 2021.
Last month the core CPI, other than food and energy rose 0.3% and was 5.7% higher from a year earlier. This has been the slowest pace since December 2021. According to economists, the core CPI is a better indicator of underlying inflation rather than the headline measure.
This report points towards signs that inflation is cooling down. As a result, make way for the Fed to downshift to a quarter-point by their next meeting on Feb 1. Nonetheless, the resilient consumer demand specifically for services combined with a tight labor market loom to keep peaked pressure on prices.
It is expected that Fed will raise interest rates further. That is, before assessing how decades’ most aggressive tightening cycle impacts the economy.
Fed policymakers focused on the need for high rates for quite some time. Despite the officials focusing on the need to hold rates high, investors bet in support that the central bank will cut rates by year-end.
Anna Wong, an economist, said,
“A mostly favourable December CPI report gives the Fed room to further downshift the pace of rate hikes to 25 basis points at the Jan. 31-Feb. 1 meeting.”
She also expects the Fed funds rate to peak in March at 5% and remain at that level for the rest of the year.
Nigel Green, the CEO, deVere Group, said that it is expected that the latest inflation data of the U.S. will keep the global stock market rally on track. He added that the markets await the next FOMC decision regarding interest rates. The rally will continue until then.
The next meeting of the US Fed is on January 31 – February 1, 2023.