U.S. consumer prices increased by the most in nine months in December amid higher costs for energy goods, pointing to still-elevated inflation that aligns with the Federal Reserve's projections for fewer interest rate cuts this year. There were, however, some hopeful signs in the fight against inflation, with the report from the Labor Department on Wednesday showing a measure of underlying price pressures subsiding after barely budging for four straight months. That raised prospects of tame monthly readings in the inflation gauges watched by the U.S. central bank for its 2% target and prompted financial markets to bet on a rate cut in June.
A resilient economy, the threat of broad tariffs on imported goods and mass deportations of undocumented immigrants - actions that are deemed inflationary - have led the Fed to project a shallower rate-cut path this year. President-elect Donald Trump, who will be inaugurated next week, has also pledged tax cuts, which would fuel economic growth. "There's still more inflation-fighting work for the Fed to do, which is why it has shifted plans to more slowly reduce the still-restrictive federal funds rate," said Sal Guatieri, a senior economist at BMO Capital Markets. "It will stand pat later this month and may not resume cutting rates until it gets some clarity on the inflation pass-through of the tariffs that could begin rolling out next week."
Source: Reuters
