CPI at 3.4% – Will Fed Hold Off on Interest Rate Cuts?

YEREVAN (CoinChapter.com) – The US inflation has ballooned to 3.4% in December, standing 0.3% higher than the November numbers, according to the latest Consumer Price Index (CPI) report from the Bureau of Labor Statistics.

The data came after the Federal Reserve cooled off on its hawkish approach and paused its interest rate hikes. Here’s a short rerun of the report and its possible implications for the Fed’s upcoming policy.

Shelter costs lead US Inflation in December

The significant growth can largely be attributed to escalating costs of shelter. This category witnessed a 0.5% hike over the month, contributing to over half of the core CPI’s rise. When viewed on a yearly scale, shelter expenses surged by 6.2%, accounting for approximately two-thirds of the overall inflation increase.

Motor vehicle insurance and medical care closely followed the shelter stats with a steady two-month increase.

In December, food prices saw a 0.2% rise, mirroring the increase from November. Egg prices experienced a significant monthly jump of 8.9%, yet on an annual basis, they were 23.8% lower. Energy costs recorded a 0.4% uptick following a 2.3% decrease in November, with gasoline prices climbing by 0.2%, while natural gas prices fell by 0.4%. Additionally, airline ticket prices went up by 1% over the month.

Meanwhile, it’s important to discuss how the Fed policy will reflect the recent uptick in CPI.

No Interest Rate Cuts in Sight

Did you know? The government might implement interest rate cuts after a series of quantitative tightening policies (eleven revisions) designed to battle runaway inflation. Once inflation is under control, the Fed may cut interest rates, re-expanding the economy and lowering the cost of borrowing.

DeVere Group’s Nigel Green warned against hoping for interest rate cuts any time soon, given the US inflation increase in December. He told CoinChapter that markets have been “exuberant” and got carried away with the idea that the Fed will start rolling out rate cuts in 2024. But the expectations were premature.

We believe that there’s still not enough evidence for the central bank to start cutting rates. With inflation remaining sticky, we expect rates will be higher for longer. We don’t see a policy pivot in sight. […] The markets have been pricing-in these cuts too quickly.

commented Green.

The expert also pointed out that there’s a “reality chasm” between what the Fed has signaled regarding rate cuts and what the markets are expecting.

Certainly, some stock surges – such as those that are AI-orientated – are reasonable. Yet many others have been getting ahead of themselves.

he added.