Persistent Core Inflation In The US Raises Economic Concerns

US core inflation remains stuck at 4% in November, raising questions about the Federal Reserve's interest rate strategy.

When will core inflation fall?

Recent data reveals an increase in US core inflation for November, underscoring ongoing price pressures despite a slight dip in the headline rate to 3.1%. This rise supports the Federal Reserve's stance on maintaining current interest rates.

In November, US core inflation, excluding energy and food prices, saw a 0.3% increase, keeping the year-on-year rate steady at 4%. This persistent core inflation is viewed as a key indicator of long-term price trends. In contrast, the overall inflation rate slightly decreased to 3.1%, marginally down from October's 3.2%. These figures led investors to reassess their expectations for upcoming interest rate cuts.

US CPI Data Brings No Surprises
Bitcoin barely reacted when the data dropped, as traders were expecting the slight fall with a high degree of confidence.

Federal Reserve's Interest Rate Strategy

Ahead of a key Federal Reserve decision, anticipated to maintain interest rates between 5.25% and 5.5%, the inflation data is crucial. Omair Sharif from Inflation Insights notes that the figures do not confirm a clear path to the Fed's 2% inflation target, indicating a potentially extended period of higher interest rates. This sentiment is echoed in the market's reduced expectations for a rate cut by May next year.

Market And Government Reactions

US stocks responded positively to the news, with the S&P 500 climbing 0.5%, nearing its record high from January 2022. The bond market remained stable, reflecting a measured response to the inflation data. US Treasury Secretary Janet Yellen and President Joe Biden highlighted the significant decrease in inflation, with Biden emphasizing the strength of workers' wages and household wealth, adjusted for inflation. The Fed, however, awaits the core personal consumption expenditures index, a less volatile measure, to guide its future decisions.

Economic Outlook And Projections

Despite some analysts seeing signs of inflation slowing, concerns about service sector prices and housing-related costs persist. The Fed's upcoming summary of economic projections is expected to offer insights into potential rate cuts for the next year. While some analysts like Rubeela Farooqi of High Frequency Economics suggest a continued hawkish approach by policymakers, others like Alan Detmeister of UBS indicate a possible rate cut by March to prevent interest rates from becoming overly burdensome for households and businesses as inflation approaches the target.

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