U.S. Inflation Hits 3.4% in December 2023, Sparks Rate Cut Speculation

• Clues about the Fed’s impending interest rate decision may be found in today’s CPI statistics.
•  Keeping mostly in line with market estimates, inflation rose 0.3% in December.

U.S. inflation increased to 3.4% in December 2023, according to the Consumer Price Index (CPI) statistics issued on Thursday by the United States Bureau of Labor Statistics.

A gain of 3.4% occurred in the 12 months ending in December, outpacing the 3.1% growth seen in the 12 months ending in November. Keeping mostly in line with market estimates, inflation rose 0.3% in December.

After increasing by 4.0% in November, core inflation in the United States slowed to 3.9% over the last year, according to consumer price index data.

All Eyes on Interest Rate Cut

Moreover, according to a Reuters poll, market participants were anticipating that core CPI would stay at 0.3% from the previous month, and that year-on-year inflation would decrease to 3.8% from November’s 4%.

Key clues about the Federal Reserve’s impending interest rate decision may be found in today’s CPI statistics. Predictions on the pace and severity of interest rate cuts by the Federal Reserve and other institutions have been going on since the start of the year.

Instead of the 160 basis points (bps) cut expected by the end of 2023, experts are anticipating a 140 bps ease this year, according to Fed futures pricing.

The Federal Reserve had anticipated 75 basis points (bps) of reductions for the year, so this is still an increase. The CME FedWatch tool indicates that market participants are pricing in a 69% probability of a rate drop occurring as early as March.

The figures released today will have a significant impact on the Federal Reserve’s decision on whether to maintain interest rates unchanged or to drop them as early as March.

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