Dilara Zengin
16 January 2025•Update: 16 January 2025
WASHINGTON
Uncertainties over President-elect Donald Trump’s economic policies dampen short-term rate cut prospects, despite the US inflation showing easing signs.
The US Consumer Price Index (CPI) climbed 2.9% on an annual basis and 0.4% month-on-month in December 2024, in line with market expectations, according to data released on Wednesday.
The core CPI annual rate, excluding energy and food prices, fell to 3.2% in December 2024, down from 3.3% in the last three months and below estimates, while the monthly rate rose 0.2%, easing from 0.3% in the previous four months.
Since Trump's victory in November of last year, investors were relieved by the slowdown in core inflation and the best performance of the US stock market.
The US Producer Price Index (PPI) also came in below expectations at 3.3% on an annual basis and 0.2% month-on-month, data released on Tuesday showed.
The US Producer Price Index (PPI) also fell short of expectations, coming in at 3.3% on an annual basis and 0.2% month-on-month, data released on Tuesday showed.
Bonds have been on an upward trend since last week due to concern over inflationary pressure, but they fell following PPI and CPI data releases. The US 10-Year Futures declined 13 basis points to 4.65%.
Market estimates show that the Fed is certain to keep its policy rate unchanged at this year’s first meeting, and the bank may go for its first rate cut of 2025 in June.
Analysts say promising signs of inflation will not suffice to change the course of the Fed’s rate cuts.
Inflation continues declining slowly
Mark Zandi, chief economist at Moody’s Analytics, told Anadolu that inflation continues to decline slowly and has returned to the Fed’s target, except for the increase in shelter costs, while the biggest threat to inflation is Trump’s promised tariffs and deportation policies, noting that a rate cut is not expected until later in the year, possibly in September.
Padhraic Garvey, regional head of research for the Americas at ING Financial Markets, told Anadolu that the better-than-expected monthly rates in core PPI and CPI for the two consecutive months have been positive, while the annual inflation is still high.
Garvey estimated that three 25-basis-point rate cuts may be on the horizon for this year, the first of which is more likely to be in June rather than March.
He noted that the rise in trade-weighted US dollars and bonds will dampen further growth of inflationary pressures, estimating that the Fed may find more room to cut rates in the second half of the year.
Steven Kamin, senior fellow at the American Enterprise Institute (AEI), told Anadolu that the inflation data has been encouraging, though a single-month slowdown may not be enough to make a notable change in the course of inflation, given the recent strong labor statistics.
*Writing by Emir Yildirim in Istanbul
