US Inflation Is Set to Back Fed Pause After Robust Jobs Data
(Bloomberg) — 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.
Most Read from Bloomberg
The consumer price index excluding food and energy is seen rising 0.2% in December after four straight months of 0.3% 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% from a year earlier — matching readings from the prior three months.
The annual figure suggests progress toward tamer inflation has essentially stalled, at a time when the labor 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.
The jobs figures were followed by a consumer survey that showed a spike in long-term inflation expectations. Some 22% 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.
What Bloomberg Economics Says:
“Recent FOMC communications indicate several members see the disinflation process as temporarily stalled, or see risks that it could. December’s CPI report is likely to support the view that it has indeed stalled, adding to the case for a careful approach to monetary-policy decisions in coming quarters.”
— Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou & Chris G. Collins, economists. For full analysis, click here
According to economists at Morgan Stanley & Co., 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.
