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U.S. inflation rose as expected to 2.9% in December, strengthening the case for the Federal Reserve to slow its rate of rate cuts this year.
Wednesday’s figures released by the U.S. Bureau of Labor Statistics were in line with economists’ expectations in a Reuters poll, beating November’s 2.7% rate.
Core inflation, which excludes food and energy prices, was 3.2% in December, compared to 3.3% in November.
U.S. stock futures and government bonds rose immediately after the release of the latest inflation data. Contracts tracking the S&P 500 stock index rose 1.3%, while contracts tracking the tech-heavy Nasdaq 100 rose 1.5%.
In the government bond market, the yield on the policy-sensitive two-year US Treasury note fell 0.07 percentage point to 4.3%, while the yield on the 10-year note, a proxy for global borrowing costs, was 0.08%. It fell by 4.71%, a percentage point decline. As prices rise, yields fall.
Fed officials have already signaled they intend to take a “cautious approach” to cutting interest rates, amid growing concerns that inflation will not fall to the central bank’s 2% target.
Most investors and analysts believe the Fed will not cut rates again at its next policy meeting later this month. In their own forecasts, U.S. central bankers have indicated they will only cut interest rates by another 50 basis points this year.
President-elect Donald Trump, who takes office on Monday, has laid out an aggressive plan to impose tariffs on a wide range of imports, carry out a major crackdown on illegal immigration and enact sweeping tax cuts.
Economists have warned that such plans could push up inflation even further.
