U.S. inflation accelerated in December but met expectations, while core CPI declined, and the market anticipates that the Federal Reserve will continue its rate-cutting pace.
Specifically, the December CPI rose 2.9% year-on-year, matching the expected value of 2.9% and up from the previous value of 2.7%, marking the highest level since July 2024; at the same time, the December core CPI rose 3.2% year-on-year, below the expected 3.3% and the previous value of 3.3%.
Theoretically, core CPI is more indicative of future inflation, so the market reacted positively to this data: the market increased its bets on a rate cut in June.
Chart: The probability of a rate cut in June 2025 has risen to over 70%
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/60981e5c-6d5c-4eb6-85e9-78ff970b5e40.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/60981e5c-6d5c-4eb6-85e9-78ff970b5e40.png"/>
As a result, U.S. Treasury yields fell, and U.S. stock futures jumped before the market opened: Nasdaq 100 futures surged 2%, and the S&amp;P 500 rose 1.55%.
However, a closer look at the breakdown and trends of the CPI data reveals that the market may be a bit too optimistic

In December, the U.S. CPI rose by 2.9% year-on-year, and the core CPI rose by 3.2% year-on-year, both lower than expected. Market expectations for a rate cut by the Federal Reserve have increased, with the probability of a rate cut in June rising to over 70%, leading to a decline in U.S. Treasury yields and an increase in U.S. stock futures. However, analyzing the breakdown and trends of the CPI data indicates that the market's optimism may be premature

- In December, U.S. inflation accelerated to 2.9%, matching expectations, while core CPI decreased to 3.2%, below the anticipated 3.3%.  
- This data led markets to increase bets on further interest rate cuts by the Federal Reserve, with the probability of a cut in June 2025 rising to over 70%.  
- However, a closer examination of the CPI data reveals that the market's optimism may be premature.  