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December CPI Data Hints at Sticky Inflation, Pushing Fed to Pause Rate Cuts

Market VisionWednesday, Jan 15, 2025 3:38 am ET

1min read

Last week's robust non-farm payroll data has significantly reduced market expectations for the Federal Reserve's upcoming interest rate cuts. A pause in rate cuts this month is almost certain.

The December inflation data to be released tonight not only reaffirms the Fed's reasons for pausing rate hikes but, more importantly, sets an expectation among investors that the Fed may maintain its current interest rates in the short term and even in the future.

Currently, the market anticipates that the month-on-month growth rate of December CPI will remain at 0.3%, and the year-on-year growth rate will rise from the previous 2.7% to 2.9%, reaching its highest level in five months. The year-on-year growth of core CPI inflation, excluding volatile factors such as energy and food, is expected to remain at 3.3%, with a slowdown in the month-on-month growth rate.

Evidently, although the Fed's anti-inflation process won't reverse significantly, the downward trend in 2025 may stall. The previous cooling trend of inflation was mainly driven by factors such as supply-chain improvements and declines in commodity prices. Now, these two driving forces are gradually disappearing, while new headwinds, such as changes in trade policies after Trump takes office, may start to emerge.

Investors need to prepare for the risk of rising inflation in the United States in the future and a long - term high-interest-rate market environment.

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