U.S. consumer prices showed no signs of cooling in December on the back of rising prices for energy products, indicating that inflation remains high, a sign that the Federal Reserve expects fewer interest rate cuts this year. This is consistent with the Board's outlook.
The Consumer Price Index rose 0.4% last month, after rising 0.3% in November, the Labor Department's Bureau of Labor Statistics said Wednesday. The CPI rose 2.9% in the 12 months to December, after rising 2.7% in November.
Economists polled by Reuters expected the CPI to rise by 0.3%, or 2.9% from a year earlier.
Progress in bringing inflation back to the U.S. central bank's 2% goal stalled in the second half of last year.
However, one bright spot last month was that core CPI, which excludes food and energy, was 3.2%, slightly lower than last month and slightly better than expected at 3.3%.
Dow Jones futures soared more than 600 points before Wednesday's opening bell following better-than-expected core CPI data.
Inflation eased in categories such as personal care, communications and alcoholic beverages, which saw prices decline over the month, according to the Bureau of Labor Statistics.
Prices for rent, airfare, new and used cars and trucks, medical and auto insurance increased.
Energy appears to be the main driver of the increase, contributing more than 40% to the monthly total increase. The gasoline index rose 4.4% for the month.
The U.S. central bank is projecting a shallower rate-cutting path this year, given the resilience of the economy, the threat of widespread tariffs on imports and the mass deportation of illegal immigrants, a move seen as inflationary.
President-elect Donald Trump has also promised tax cuts to stimulate the economy.
No interest rate cuts are expected at the Fed's January 28-29 policy meeting. Economists expect few rate cuts this year, but are divided on whether the central bank will lower borrowing costs again in the second half of the year.
Goldman Sachs had forecast two rate cuts in June and December of this year, down from three. Bank of America Securities believes the Fed's easing cycle is over.
The central bank began its easing cycle in September, cutting the benchmark overnight interest rate by 100 basis points to its current range of 4.50-4.75%.
The last rate cut was in December, and policymakers had expected two rate cuts this year instead of the four they expected in September. The policy interest rate was raised by 5.25 percentage points from March 2022 to July 2023.
