"New Federal Reserve News Agency": December U.S. CPI data unclear, Federal Reserve expected to remain on hold

In December, the U.S. CPI rose 2.9% year-on-year, reaching the highest level since July last year, despite meeting expectations. Nick Timiraos, a senior Federal Reserve reporter known as the "new Federal Reserve correspondent," commented that the U.S. CPI report released on Wednesday had little impact on the prospects of the Federal Reserve pausing interest rate cuts. The mixed data fails to indicate the direction of inflation, and the Federal Reserve is expected to remain on hold this month, needing more data to determine the next steps.

According to the CPI report, the rise in food and gasoline prices in December drove the consumer price index to record the largest month-on-month increase in nearly a year.

However, the core CPI, which excludes volatile food and energy items, only rose 0.2% month-on-month, below the expected and previous value of 0.3%, marking the mildest increase in six months, after the core CPI had risen 0.3% for four consecutive months. Economists generally believe that core CPI data better reflects underlying inflation trends than the overall CPI, which includes frequently fluctuating food and energy costs.

Timiraos believes that robust employment data, combined with mixed signals of inflation improvement, has led Federal Reserve officials to state that they are still prepared to remain on hold in January until they see more evidence that the current interest rate levels can effectively suppress inflation.

This year, investors have been confused about the possible policy direction of the Federal Reserve: Will the central bank cut rates this spring? Will there be no rate cuts throughout the year? Is there even a possibility of a rate hike next? Timiraos stated that the latest inflation data did not have a substantial impact on the answers to these questions.

He said that the data neither showed inflation re-accelerating, which would weaken the case for future rate cuts, nor indicated that price pressures were rapidly easing. For the Federal Reserve, which is in a wait-and-see mode, several more months of data are needed to decide on the next policy action.

Last week, the U.S. non-farm payrolls for December grew significantly beyond expectations, and the unemployment rate unexpectedly fell. At that time, Timiraos exclaimed, "The employment report closed the door on a rate cut in January." He pointed out that the Federal Reserve had cut rates by a cumulative 100 basis points over the last three meetings, raising the threshold for further rate cuts.

Additionally, the financial blog Zerohedge shares a similar view with Timiraos, believing that the latest CPI data falling below expectations helps to restart discussions on progress in inflation, but Federal Reserve officials need to see a series of disappointing data before they can be confident about this. The persistent inflation pressures previously led to a significant sell-off in the global bond market and raised concerns about the Federal Reserve's overly rapid easing of policies at the end of last year.

Combined with last week's strong non-farm payroll report, there is a general expectation that the Federal Reserve will maintain interest rates at its meeting later this month. However, more economists have indicated that this report makes a rate cut in March possible, for example, if another cooling CPI report and weak non-farm employment data emerge. Before the release of this CPI report, traders generally expected that rate cuts would not occur again until the second half of this year