US inflation is set to back Fed pause after robust jobs data
UNDERLYING US inflation probably cooled only a touch at the close of 2024 against a backdrop of a resilient job market and steadfast economy, supporting the Federal Reserve’s go-slow approach to further rate cuts.
The consumer price index (CPI) excluding food and energy is seen rising 0.2 per cent in December after four straight months of 0.3 per cent increases, according to the median projection in a Bloomberg survey of economists. The core CPI, a better snapshot of underlying inflation, is forecast to have risen 3.3 per cent from a year earlier – matching readings from the prior three months.
The annual figure suggests progress towards tamer inflation has essentially stalled, at a time when the labour market and demand show scant signs of distress. Employers added more than a quarter million jobs in December, well above forecasts, and the unemployment rate unexpectedly fell, according to government data released on Friday (Jan 10).
The jobs figures were followed by a consumer survey that showed a spike in long-term inflation expectations. Some 22 per cent of those polled by the University of Michigan reported that buying big-ticket goods now would enable them to avoid future price hikes – a share that matches the largest since 1990.
Economists at some of the biggest US banks pared their forecasts for more rate reductions after the jobs report. Fed officials in December indicated that they’d only lower their benchmark twice in 2025, a less aggressive outlook than they had in September, and recent comments suggest even more restraint.
According to economists at Morgan Stanley, recent momentum in the economy can be chalked up to elevated household net worth, pent-up spending on automobiles, and wage growth that’s outpacing inflation.
Wednesday’s CPI report will be followed a day later by December retail sales numbers, which are expected to confirm robust spending during the holiday season.
Meantime, Fed data on Friday may indicate manufacturing is stabilising, albeit at a depressed level. Economists project a 0.2 per cent gain in December factory output, in line with November’s advance – the first back-to-back increase since February-March.
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