Fresh inflation data released Wednesday is likely to keep the Federal Reserve on hold during its next policy meeting this month, although a new reading shows some signs of easing.
On a “core” basis, which strips out the more volatile costs of food and gas, December's Consumer Price Index (CPI) climbed 0.2% over the previous month, a slowdown from November's 0.3% monthly increase. Annually, prices rose by 3.2%.
This was the first decline on a core basis after three months of being stuck at 3.3%.
“This latest inflation reading confirms the Fed's rate cut skip at the January FOMC meeting,” said EY chief economist Gregory Daco.
The new print “will not change expectations for a pause later this month, but should curb some of the talk about the Fed possibly raising rates,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management.
The Fed meets next on January 28-29, and investors almost unanimous in their opinion the central bank will leave rates unchanged after lowering them by a full percentage point at the end of 2024.
“We're making progress on inflation, it's very slow,” former Federal Reserve economist Claudia Sahm told Yahoo Finance Wednesday. “Cuts aren't 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 deflation to move forward, it will take time, and the process may well be fragile.”
The economic outlook, he added, “remains very uncertain, particularly around fiscal, trade, immigration and potential regulatory policies” – a reference to potential changes that could occur as part of the incoming Trump administration .
Many Fed officials in recent weeks have been urging caution about future rate cuts.
In fact, minutes from the Fed's December meeting showed officials believed inflation could take longer than expected to reach their 2% target, citing steadier-than-expected inflation data since the past collapse and the risks caused by the new policies of Trump 2.0.
They noted that “the likelihood that high inflation could be more persistent had increased,” according to the minutes, although they still expected the Fed to bring inflation down to its 2% target “over the next few years.”
Several members of the Fed even said at that meeting that the deflation process could have temporarily slowed down or indicated the risk that it could.
