The Federal Reserve is expected to keep its stance unchanged during its upcoming policy meeting later this month, according to fresh inflation data released on Wednesday, even though the most recent report showed signs of easing.
Core CPI data for December showed a 0.2% increase, down from 0.3% in November. Core data does not include food and petrol prices, which are very volatile. After three months of remaining unchanged at 3.3%, prices increased by 3.2% on an annual basis, indicating that core inflation has begun to decline.
This most recent inflation data lend credence to the notion that the FOMC will refrain from implementing any rate cuts at their meeting in January, according to EY chief economist Gregory Daco. While the outlook for a pause has not changed, talk of additional rate hikes is likely to die down, according to Morgan Stanley’s Ellen Zentner, who shared this view.
Following a substantial rate cut in late 2024, market participants are nearly in agreement that the Federal Reserve will keep rates unchanged at their upcoming meeting on January 28–29.
Despite the lack of urgency, former Federal Reserve economist Claudia Sahm has admitted that rate cuts may still occur later this year despite the sluggish inflation progress.
ALSO READ: Mukuru Financial Services Unveils Major Transformation to Boost Financial Inclusion Across Africa
While disinflation is anticipated to persist, it may be uneven and take some time, according to New York Fed President John Williams, who also commented on the CPI release. What the new government will do with taxes, trade, and regulations is a major unknown that could have a significant impact on the economy.
Inflation may be more persistent than anticipated, according to the minutes from the December meeting of the Federal Reserve, and officials were wary about the timetable for inflation to reach the 2% objective. Because of this, the Fed is now more concerned about high inflation and has reduced its projected number of rate cuts for 2025 from four to two.
There is still some disagreement among Fed officials as to when interest rates will be cut in the future; some want a more gradual approach. Both Jeff Schmid of the Kansas City Fed and Susan Collins of the Boston Fed have voiced their preference for a gradual and cautious approach to policy.
Though he does concede that the new administration’s possible policy shifts remain a mystery, George Catrambone of the DWS Group views the most recent inflation statistics as a “sigh of relief” for the Fed. Some experts have speculated that the first rate cut of 2025 might not occur until after the Jackson Hole economic symposium in late August, but no one knows for sure.