On January 15, the latest U.S. inflation report indicated that the growth rate of the core Consumer Price Index (CPI) slowed in December, providing more room for the Federal Reserve's monetary policy adjustments. The data showed that the year-on-year core CPI growth rate recorded 3.2% in December, the lowest since August 2024, and below the previous 3.3%.
Inflation Data Details
The report showed that the U.S. CPI monthly rate, seasonally adjusted, was 0.4% in December, the highest since March 2024, slightly above the market expectation of 0.3%; the unadjusted CPI annual rate was 2.9%, in line with expectations and higher than the previous value of 2.7%. The core CPI monthly rate recorded 0.2%, lower than the previous value of 0.3%.
Energy prices were the main driver of the overall CPI increase, accounting for more than 40% of the total growth, with gasoline prices up 4.4% for the month. Housing inflation remained moderate, with a month-on-month growth rate of 0.3%; the super-core services price increase was 0.21%, the lowest since July 2024.
Market Reaction
Following the release of the CPI data, the market reacted swiftly. The dollar index dipped by over 40 points in the short term, while spot gold rose nearly $10, briefly surpassing $2,690. Non-U.S. currencies generally appreciated, with the pound rising over 60 points against the dollar, the euro gaining over 50 points against the dollar, while the dollar weakened by 60 points against the yen and 40 points against the Canadian dollar.
In the stock market, futures for the three major U.S. stock indexes soared. Nasdaq index futures rose by 1.52%, S&P 500 index futures by 1.31%, and Dow Jones index futures by 1.26%, indicating investors' confidence in the market environment following the easing of inflation.
Rising Rate Cut Expectations
The interest rate futures market suggests traders anticipate the Federal Reserve may cut rates twice again by the end of 2025, with the first cut possibly occurring in June, and a second cut having a 50% probability. Before the release of the December CPI report, the year-on-year core CPI growth rate had remained at 3.3% for four consecutive months, and the recent decline indicates that inflation pressure is easing.
However, analysts remain cautious about rate cut expectations. Aditya Bhave, an economist at Bank of America, pointed out that despite the favorable latest CPI data, the strong momentum in the job market may lead the Federal Reserve to refrain from cutting rates in the short term. He emphasized that the Federal Reserve may need several months to observe sustained inflation decline before considering further policy easing.
Analysis and Outlook
Analyst Chris stated that the latest inflation data is "good news" for the Federal Reserve but not sufficient to change the current monetary policy direction. The volatility in energy prices and the stability of the job market remain key factors influencing rate cut decisions. Inflation data in the coming months will become the focus of market attention and may directly impact the Federal Reserve's policy adjustments.
Conclusion
The decline in December's core CPI provides an opportunity to alleviate market concerns about inflation, but the Federal Reserve's future policy path still depends on the extent of further economic cooling. Investors will closely monitor inflation and employment data in the coming months to determine the Federal Reserve's next move.
