The Consumer Price Index (CPI) data for December revealed that core price pressures eased more than expected, with the S&P 500 powering higher in response. However, stubbornly high inflation still poses a challenge for the Federal Reserve and the stock market.
The CPI rose 0.4% on the month, exceeding forecasts, but the 12-month headline inflation rate remained at 2.9%, matching expectations. The core CPI, which accounts for most of the inflationary pressure, rose 0.2%, just below views. The biggest component of the core CPI, owner’s equivalent rent, rose 0.3%.
Despite the better-than-expected data, markets still expect a Federal Reserve rate cut before June, with odds of a rate cut now standing at 68%. However, some analysts believe the Fed may delay a rate cut due to relatively benign inflation data.
The S&P 500 rose 1.7% in early trading after the CPI report, but investors remain cautious about the impact of President-elect Trump’s policies on inflation. The Trump agenda is seen as likely to contribute to higher prices this year, and markets are pricing in a higher risk of inflation.
Overall, while the CPI data provided some relief for the stock market, it also raised concerns about the future of inflation and the potential impact on the Federal Reserve’s monetary policy.
Source: https://www.investors.com/news/economy/cpi-inflation-dec-sp-500-federal-reserve