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.”
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 that disinflation will progress, it will take time, and the process may well be choppy.”
The economic outlook, he added, “remains highly uncertain, especially around potential fiscal, trade, immigration, and regulatory policies” — a reference to possible changes that could happen as part of the incoming Trump administration.
Lots of Fed officials in recent weeks have been urging caution on future rate cuts.
In fact, the Fed’s December meeting minutes showed officials believed inflation could take longer than anticipated to reach their 2% goal, citing stickier-than-expected inflation data since past fall and the risks posed by new policies of Trump 2.0.
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.
