BOCOM INTL: The U.S. December nominal CPI met expectations, inflation is slowing but upward risks remain
The BOCOM INTL report pointed out that the U.S. CPI in December 2024 increased by 2.9% year-on-year, in line with expectations, and increased by 0.4% month-on-month. Although the slowdown in core CPI has eased market tensions, medium-term upward risks still exist. Market expectations for the Federal Reserve to cut interest rates remain unchanged, with the January FOMC meeting expected to maintain current policies, and the timing of rate cuts possibly being advanced to June 2025
According to the Zhitong Finance APP, BOCOM INTL released a report stating that following the strong growth of non-farm data in December, the CPI data has become the market's focus. After a new round of steep increases in U.S. Treasury yields, the CPI data will undoubtedly further amplify the volatility of the already fragile capital markets. The nominal CPI for December met expectations, while the slowdown in core CPI, especially in core services inflation data, has significantly eased market tensions. However, the temporary easing of inflation may provide limited comfort to the market, and mid-term upward risks remain pessimistic.
BOCOM INTL stated that the U.S. December 2024 CPI is expected to increase by 2.9% year-on-year, with a previous expectation of 2.9% and last month's figure at 2.7%; month-on-month, it is expected to increase by 0.4%, with a previous expectation of 0.3% and last month's figure at 0.3%. The core CPI for December is expected to increase by 3.2% year-on-year, with both the expectation and previous value at 3.3%; month-on-month, it is expected to increase by 0.2%, with an expectation of 0.2% and last month's figure at 0.3%.
After the unexpected drop in inflation data for December was released, the market's expectations for skipping interest rate cuts in January remained largely unchanged. However, compared to the strong non-farm data released last week, the market has brought forward its bets on the timing of interest rate cuts in 2025—from September to June, but the overall bets for the year still remain at 1-2 cuts.
The Federal Reserve will hold its January FOMC meeting next week. Given the combination of strong non-farm data and slowing inflation data, skipping interest rate cuts in January has become the baseline scenario. Currently, there is significant disagreement among Federal Reserve officials regarding interest rate cuts. Although most officials have recently indicated a slowdown in rate cuts and will observe data, the current policy rate remains high and restrictive, and the Federal Reserve is expected to choose the right time to cut rates