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Although U.S. producer prices rose modestly in December, the recovery in the labor market is unlikely to change the Fed's view that it will not cut interest rates again in the second half of this year.
The final demand producer price index rose 0.2% last month, after rising an unrevised 0.4% in November, the Labor Department's Bureau of Labor Statistics said Tuesday. Economists polled by Reuters had expected the PPI to rise by 0.3%.
PPI rose 3.3% in the 12 months to December, following a 3.0% rise in November. The year-over-year increase reflects last year's drop in prices, especially when energy products were taken out of the equation.
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Customers shop at a grocery store in Chicago, Illinois. (Scott Olson/Getty Images/Getty Images)
The report follows last week's news of a strong increase in non-farm payrolls in December and a decline in the unemployment rate, leading economists to expect the U.S. central bank to keep interest rates on hold until June.
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Workers build a home on June 15, 2023 in Lillington, North Carolina. (Photographer: Alison Joyce/Bloomberg via Getty Images/Getty Images)
At least one Wall Street institution, Bank of America Securities, now believes the Fed's easing cycle is over. Goldman Sachs expects two rate cuts this year, in June and December, a downward revision from the previous three.
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%.
Federal Reserve Chairman Jerome Powell during a press conference after the Federal Open Market Committee (FOMC) on Thursday, November 7, 2024 in Washington, DC. (Ting Sheng/Bloomberg via Getty Images/Getty Images)
The last rate cut was in December, and policymakers had expected two rate cuts this year instead of the four they expected in September.
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In order to curb inflation, the policy rate was raised by 5.25 percentage points in 2022 and 2023. Concerns are growing that President-elect Donald Trump's pledges to impose or significantly increase tariffs on imported goods and deport millions of illegal immigrants could lead to inflation. That was clear from the sharp rise in consumer inflation expectations in January.
