Inflation keeps going down and it could cool off the Fed too

Inflation keeps going down and it could cool off the Fed too



US inflation continued to slow in December, adding to evidence price pressures have peaked and offering the Federal Reserve room to slow the pace of interest-rate hikes next month.

Excluding food and energy, the consumer price index rose 0.3% last month and was up 5.7% from a year earlier, according to a Labor Department report Thursday. Economists see the gauge — known as the core CPI — as a better indicator of underlying inflation than the headline measure.

The overall CPI fell 0.1% from the prior month, with cheaper energy costs fueling the first decline in 2 1/2 years. The measure was up 6.5% from a year earlier.

Follow the reaction in real-time here on Bloomberg’s TOPLive blog

US stock futures dropped before paring losses and Treasuries fluctuated. All of the figures matched the median estimates in a Bloomberg survey of economists.

The data, when paired with prior months’ lower-than-expected readings, point to more consistent signs that inflation is easing and may pave the way for the Fed to downshift to a quarter-point hike at their next meeting ending Feb. 1. That said, the central bank’s work is far from over.

Resilient consumer demand, particularly for services, paired with a tight labor market threaten to keep upward pressure on prices.

The Fed is expected to raise interest rates further before pausing to assess how the most aggressive tightening cycle in decades is impacting the economy. Policymakers have emphasized the need to hold rates at an elevated level for quite some time and cautioned against underestimating their will to do so. Investors are still betting the central bank will cut rates by year end, despite officials saying otherwise.

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Rachel Meadows

Rachel Meadows

Trending topics news writer who enjoys cooking, walking her dog and travel.