Updated at 8:55 AM EST
U.S. inflation pressures ticked higher in December, but core prices eased for a third straight month, suggesting the Federal Reserve will find support for its cautious stance on interest rates over the coming quarter.
The headline consumer price index for December was pegged by the Commerce Department at 3.4%, rising from the prior month’s tally of 3.1% and coming in firmly above Wall Street’s 3.2% consensus forecast.
The gains came even amid falling oil and energy prices and a near 5.5% slide in domestic gasoline and were powered in part by a big jump in rent and housing costs.
On a monthly basis, inflation edged 0.3% higher, compared with a 0.1% gain in November and unchanged readings in October and September.
So-called core inflation, which strips out volatile components like food and energy, eased to 3.9%, the lowest in two years, while the monthly reading of 0.3% also matched Wall Street forecasts.
US core services inflation is above 5% again rising for the fourth straight month when you annualize the 6-month average of m/m changes.
The question this year is whether central banks and maybe even more so the market has underestimated wage dynamics… #equities pic.twitter.com/Mg66EQ8C5D
— Peter Garnry (@petergarnry) January 11, 2024
The Fed has said it tracks core inflation pressures as part of its price-stability mandate, and the year-on-year gains remain nearly double its preferred target of 2%.
New York Fed President John Williams, in fact, told an event in the city last night that he and his colleagues need to see more data in order to find conviction that inflation is in full retreat.
“I expect that we will need to maintain a restrictive stance of policy for some time to fully achieve our goals, and it will only be appropriate to dial back the degree of policy restraint when we are confident that inflation is moving toward 2% on a sustained basis,” he said.
U.S. stocks pared earlier gains following the data release with futures contracts tied to the S&P 500 indicating a 2-point opening bell dip while those tied to the Dow Jones Industrial Average suggest a 10-point decline.
Benchmark 10-year Treasury note yields edged 5 basis points higher following the data release to change hands at 4.043% while 2-year notes were pegged at 4.375%, 4 basis points higher from prior to the data release.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.15% higher at 102.515.
The CME Group’s FedWatch has long discounted the chances of a Fed rate move later this month in Washington, but pegs the chances of a quarter-point cut in March at around 61.5%, down from 69% prior to the data release.
Bets on a May reduction, meanwhile, are hovering at around 92%, up from 74% following the Fed’s December meeting.
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