Interest Rate Cuts 'On Hold' After December's Inflation Data

In December, consumer inflation showed a slight easing, with the core Consumer Price Index (CPI) registering at 3.2% on a year-over-year basis, which is lower than the anticipated 3.3%. Headline CPI also reflected a year-over-year rise of 2.9%, aligning with expectations. This latest inflation data is crucial as the Federal Reserve prepares to make its next decision regarding interest rates later this month.

Expert Insights: Chris Zaccarelli, chief investment officer for Northlight Asset Management, remarked on the declining month-over-month and year-over-year core inflation figures. He believes that the report could ease pressure in both the stock and bond markets.

Joseph Brusuelas, chief economist at RSM, emphasized that inflation is still proving to be persistent and appears to have plateaued above the Fed's target rate of 2%. He identified the service sector and housing as particularly resistant areas regarding inflation.

Brusuelas commented further on the implications of the December CPI data, stating, "The December CPI affirmed the growing inclination at the Federal Reserve that any further rate cuts — if there are cuts at all in 2025 — should be postponed until the second half of that year."

Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report, mentioned that while the lower core inflation figure is a positive sign, he does not foresee the Fed cutting rates in the first quarter. He noted that inflation remains somewhat persistent and the labor market continues to show strength. Tentarelli expects the Fed to maintain its stance for the next few months unless there is a significant decline in employment data.

Jamie Cox, managing partner at Harris Financial Group, interprets December’s mixed CPI as evidence that inflation is gradually leaving the system. He stated, "Core inflation isn't accelerating, and that's the key takeaway. The market may have been overly concerned about runaway inflation, but current data does not support that narrative."

Market Reactions: Following the CPI report, all major U.S. indices opened higher. The SPDR S&P 500 ETF Trust (SPY) increased by 1.71%, reaching $592.12, while the Invesco QQQ Trust (QQQ) saw a rise of 2.09%, hitting $515.64 at the time of publishing.

Overall, the recent inflation data has led to a cautious outlook regarding future interest rate cuts, reflecting the complexities of the economic landscape.

interest, inflation, economy