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The December CPI report shows some prices are coming down more than expected while the cost of other goods and services continue to rise.
Today’s release was enough to satisfy investors, though.
The S&P 500 and Nasdaq Composite indexes were trading 1.8% and 2.3% higher, respectively, at 2 pm ET Wednesday. The mid-week rally helped pare losses from earlier in the week. The Nasdaq Composite is now flat for the past five trading days while the S&P 500 has edged into the green, now up 0.5% over that time.
Prices increased 0.4% over the month and 2.9% over the year, coming in close to the forecasted readings of 0.3% and 2.9%, respectively. Core CPI though, which excludes food and energy prices, slowed to 3.2% in the 12 months ended December, just under analysts’ expectations of 3.3%.
The report had little impact on interest rate expectations, with fed funds futures markets still calling for a 97% chance committee members hold rates steady later this month.
Still, December’s reading shows the central bank has made some progress in moving inflation back down to its 2% target, and investors were thrilled.
Looking ahead, analysts say rate cuts in 2025 are probably still in the cards, but not too many of them.
“The key question now is whether the FOMC’s ‘skip’ turns into a more prolonged ‘pause’,” said Michael Brown, senior research strategist at Pepperstone. “Risks around the policy outlook this year are considerably more two-sided than those seen last year, with a renewed hawkish risk re-introduced to the policy path.”