Thursday at 8:30 a.m. ET, the most recent inflation reading is scheduled to be released as investors seek hints regarding when the Federal Reserve will begin reducing interest rates.
An annual headline inflation rate of 3.2% is anticipated to be reflected in the December Consumer Price Index, a marginal increase from the 3.1% increase observed the previous month. However, when the volatile food and energy categories are eliminated, economists anticipate that “core” inflation will decline to 3.8% annually from 4.0% the previous month.
Since the last CPI report, investors have been increasingly factoring in the probability of a gentle landing—inflation retreating to 2% without an economic downturn—and the print will be crucial. Such a result might signal the end of the central bank’s interest rate hike campaign, allowing it to begin rate cuts that would reduce the cost of financing for consumers and businesses.
What the Fed’s halt on rate hikes means for credit cards, bank accounts, CDs, and loans
Bank of America economists anticipate headline and core inflation readings that are marginally above the consensus. However, according to the BofA economics team, even “core” CPI at 3.9% in December could leave the door open for a Fed rate cut in March.
“A CPI report consistent with our forecast would further indicate the Federal Reserve’s steady advancement towards its two percent target,” wrote US economist Stephen Juneau in a client note. “Therefore, in our view, it would keep the Fed on track for 100bp of cuts this year beginning with a 25bp cut in March and continuing at a quarterly cadence thereafter.”
The markets priced in a 67% possibility that the Federal Reserve will reduce interest rates in March as of Wednesday afternoon, according to the CME FedWatch Tool.
