Slight Inflation Uptick Aligns with Federal Reserve Projections
Team Youngistaan
U.S. consumer prices rose more than anticipated in December, driven by increased energy costs. The consumer price index (CPI) climbed 0.4% for the month, following a 0.3% rise in November, according to data released by the Labor Department’s Bureau of Labor Statistics on Wednesday. On an annual basis, the CPI advanced 2.9%, slightly up from November’s 2.7% increase. Economists had projected a monthly increase of 0.3% and a year-on-year rise of 2.9%.
Persistent Inflation Challenges Fed Targets
Efforts to return inflation to the Federal Reserve’s 2% target encountered hurdles in the latter half of 2024. Contributing factors include a resilient economy, the possibility of broad tariffs on imports, and potential mass deportations of undocumented immigrants—all of which could further fuel inflation.
The incoming administration’s tax cut pledges could also stimulate economic activity, potentially adding upward pressure on prices. Consumer inflation expectations have surged in January, largely driven by concerns over tariffs raising goods costs.
Core Inflation Holds Steady
Excluding the volatile food and energy categories, the core CPI rose by 0.2% in December, a slight deceleration from four consecutive months of 0.3% gains. Annually, the core CPI increased 3.2%, following a 3.3% rise in November.
Monetary Policy Outlook
The Federal Reserve is not expected to implement a rate cut during its January 28-29 policy meeting. While fewer rate cuts are anticipated in 2025, economists remain divided on the timeline for further monetary easing. Some predict that any additional rate reductions may occur in the latter half of the year.
Goldman Sachs revised its forecast to include two rate cuts in June and December, down from an earlier projection of three. Meanwhile, Bank of America Securities suggested that the Fed’s easing cycle may have concluded.
Rate Cut Trajectory
Since launching its easing cycle in September 2024, the Federal Reserve has reduced its benchmark interest rate by 100 basis points, settling within the 4.50%-4.75% range. The most recent reduction occurred in December, with policymakers projecting two additional cuts in 2025, down from the four forecasted in September. Between March 2022 and July 2023, the policy rate was raised by 5.25 percentage points.
