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The latest inflation numbers are scheduled to be released Thursday at 8:30 a.m. ET as investors look for clues about when the Federal Reserve will start cutting interest rates.
December’s consumer price index is expected to rise slightly with annual headline inflation to 3.2%. This was an increase of 3.1% compared to the previous month. But excluding the volatile food and energy categories, economists expect “core” inflation to fall to an annualized rate of 3.8% from 4.0% last month.
This print will be important for investors who have increasingly priced in the possibility of a soft landing (inflation retreating to 2% without a recession) since the last CPI report. Such an outcome could mean the central bank’s interest rate hike campaign ends and it begins to cut interest rates, lowering borrowing costs for businesses and consumers.
Bank of America economists predict Our view is that headline and core inflation are slightly higher than the consensus. But even a December “core” CPI of 3.9% could leave the door open for a Fed rate cut in March, according to the BofA economics team.
“CPI reporting in line with our expectations continues to signal continued progress toward the Fed’s 2% target,” U.S. economist Stephen Juneau said in a note to clients. “Thus, in our view, the Fed will be on track to cut rates by 100 basis points, starting with a 25 basis point cut in March, and then on a quarterly basis thereafter.”
As of Wednesday afternoon, the market was pricing in about a 67% chance of the Fed cutting rates in March, according to the CME FedWatch tool.
On a monthly basis, economists expect prices to rise 0.2% in December, up from 0.1% the previous month. Meanwhile, economists expect core inflation to rise 0.3% month-on-month, unchanged from November.
Economists at Goldman Sachs internally highlighted three key areas to watch in Thursday’s report: auto prices, airfare and shelter. Goldman said in a December report that airfares could pose an upside risk, while auto and home prices will continue to fall.
Goldman confirmed that its airline team’s real-time price measurements have “significantly increased.” According to Goldman, this could lead to a 5% increase in airfares in December, increasing their contribution to “core” CPI by 3 basis points.
Goldman economists Manuel Abecassis and Spencer Hill said, “Inflation is expected to rise further in 2024 due to the rebalancing of the auto, home rental, and labor markets, but We expect some offset from slower acceleration,” Goldman economists Manuel Abecasis and Spencer Hill said in a paper. Research notes.
“We expect year-over-year core CPI inflation to be 2.9% and core CPI inflation to be 2.9%. [Personal Consumer Expenditures] The inflation rate in December 2024 will be 2.2%. ”
Markets are aggressively pricing in rate cuts as the outlook for inflation weakens, but Fed officials are taking a more cautious view.
Fed Governor Michelle Bowman said Monday that the Fed may eventually have to cut rates if inflation falls further, but “we’re not there yet.”
Atlanta Fed President Rafael Bostic expressed a similar view in separate remarks Monday.
“We have a restrictive stance and I’m happy with that. I just want to see the economy continue to evolve in that stance and hopefully keep inflation at the 2% level,” he said. I hope we can reach that goal.” The media reported his comments.
Given the Fed’s preliminary comments and the aggressive rally in stock prices since the last inflation report, Wall Street strategists are tempering their expectations for stock market reaction following the report.
”[December’s] Steve Sosnick, chief strategist at Interactive Brokers, told Yahoo Finance Live that there is some asymmetric risk in the CPI numbers. “I think the good numbers, the better-than-expected numbers, are already priced in…I don’t think it’s an upside surprise. Inflation is priced in at this point,” he said.
Josh Schafer is a reporter for Yahoo Finance.
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