What December’s CPI Tells Us: A Wobbly Road to 2% Inflation
Headline Numbers – The Big Picture
Prices climbed 2.9% YoY, hitting a pace that matches what analysts had in mind. It’s the fastest pace since July, but not a runaway train.
Core Inflation – A Tempest of a Slow Down
The core CPI, which strips out the volatile food and energy pieces, rose 3.2% YoY. That’s the gentlest climb since August of last year, hinting that the under‑the‑surface price pressure may be cooling off a little.
Why It Matters (and Why It Doesn’t)
- The numbers largely confirm what the market had already been humming: price pressures stick around.
- So, the path back to the Fed’s 2% goal will feel more like a rollercoaster than a leisurely stroll.
The Fed’s Playbook
Given the stubborn inflation and a solid labor market, the Federal Open Market Committee (FOMC) is likely to skip the January meeting. The looming threat of higher inflation from the Trump administration’s expected trade moves further sweetens that decision.
Future? A Pause or a Longer Stay?
Will the Fed just pause, or will the hiatus stretch on? Look at the data trend: rapid rate cuts in 2024 gave way to a more cautious pace this year. If 2025’s early numbers keep looking strong, Powell and his crew might stay off the keyboard for the first quarter.
Policy Risks: Two Sides of the Same Coin
- Hawkish risk returns. The Fed’s hawk seems back in the room.
- No more “Fed Put.” That safety net for risk assets has gone, and each solid data release just nudges it further away.
Equities: Still Leading the Charge, But Not Smooth Sailing
While earnings growth and steady data should lift the markets, expect a few bumps. Confidence may take a hit, especially with Q4 earnings and President‑elect Trump’s upcoming inauguration on the horizon.
