(Reuters) – U.S. prices increased in December while consumer spending surged, suggesting that the Federal Reserve could delay cutting interest rates for some time this year.
The personal consumption expenditures (PCE) price index rose 0.3% last month after an unrevised 0.1% gain in November, the Commerce Department said on Friday. Economists polled by Reuters had forecast the PCE price index climbing 0.3%. In the 12 months through December, the PCE price index advanced 2.6% after rising 2.4% in November.
The U.S. central bank tracks the PCE price measures for monetary policy.
MARKET REACTION:
STOCKS: S&P 500 emini futures held firm at up 0.48%, pointing to a firm open on Wall Street
BONDS: U.S. Treasury 10-year yield was little moved at 4.523% and the two-year yield ticked up 4.207%
FOREX: The dollar index held firm, up 0.157%
COMMENTS:
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“Basically on a monthly basis, inflation was a little bit higher than I expected it. On a year-to-year, that was a little bit higher, but the core, which is actually the key, was basically unchanged on a year basis.
“Basically, it doesn’t really change the needle much. It’s a mixed report, and it plays into the hands of the Fed in that the Fed needs more confirmation that inflation is going in the right direction.
“The bottom line is this report is not going to have a major impact on the markets in either direction. The tariff situation is what’s on the front line and you just have to wait and see… We might get a surprise, and it might be a little less than the 25% that Trump has been talking about.”
GENNADIY GOLDBERG, HEAD OF US RATES STRATEGY, TD SECURITIES, NEW YORK
“It’s an interesting set of data for markets. The very strong personal income spending data continues to suggest that the consumer remains resilient. At the same time, you do have inflationary pressures continuing to fade. Before rounding, it was 0.156% (core PCE increase on the month), so it’s actually quite a positive number, I would say, for the rates market. It really underscores that the Fed can keep rates on hold, at least for the next meeting or so if data like this continues, and we actually think the Fed can keep rates on hold for even longer, all the way through the first half of the year.”
KYLE CHAPMAN, FX MARKETS ANALYST, BALLINGER GROUP, LONDON
“The data points to the trend for U.S. rates still pointing downwards, but it also confirms that the Fed is right to kick off an extended pause. While 2.8% is clearly well above the target, we are going to see some quick gains on the year-on-year figure over the next few months, as the spike in Q1 last year fades from the calculation.
“The three- (2.2%) and six-month (2.8%) annualized rates are consistent with 2% being achieved over the next year or so. Inflationary pressures are easing in the long run and the upcycles should be looked through. By June the Fed should be confident enough in restarting the cutting cycle.”
CLARK BELLIN, PRESIDENT AND CHIEF INVESTMENT OFFICER, BELLWETHER WEALTH, LINCOLN, NEBRASKA (by email)
“Inflation is still firmly above the Federal Reserve’s 2% target. While Friday’s PCE print was in-line with expectations, the data shows that inflation remained elevated in December to end 2024, making it somewhat ironic that the Federal Reserve cut interest rates during the same month. With still stubborn inflation and a very strong economy and labor market, as the Federal Reserve suggested on Wednesday, more time is needed to allow inflation to settle down before the Fed can cut rates again.”
(Compiled by the Global Finance & Markets Breaking News team)
