Stocks rose on Wednesday after the December CPI reading finally showed some relief in core inflation and investors calibrated Fed rate cut bets.
But the risk of sticky prices still looms large in the face of regime change in Washington when President-elect Donald Trump takes office next week. Economists largely agree that the battle to curb inflation is far from over.
“Inflation has not been consistent,” Claudia Saham, chief economist at New Century Advisors and a former Fed economist, told Yahoo Finance’s Morning Briefs show. “It was completely uneven.”
Although inflation slowed, it remained above the Fed’s target of 2% on an annual basis. Rising costs for shelter and basic services such as medical care and insurance have contributed to stubborn readings in recent months, with consumers simultaneously feeling the squeeze in grocery stores as well as at pumping stations.
“I don’t think we’re completely out of the woods here,” Ed Yardeni, president of Yardeni Research, told Yahoo Finance’s Market Dominating Overtime. “We have to remember that at the end of 2023, there were disinflation trends. Then we got to 2024 and we saw a bit of a reversal of that.”
Rising wages and a strong labor market have offset recent pricing pressures to some extent, but underlying trends show continued consolidation in the categories that most families rely on. This makes the Fed’s task more difficult to implement.
“Getting some ‘not bad’ news is a bit of a breather,” Sahm said, referring to December’s slowdown in housing inflation and monthly core prices. But “this isn’t really a game-changer. It’s much more so than what we saw with the mixed monthly volatility.”
Volatility is likely to increase as Trump takes office on Monday.
The policies Trump proposes, such as high tariffs on imported goods, corporate tax cuts, and restrictions on immigration, are seen as inflationary. These policies could further complicate the central bank’s path forward regarding interest rates.
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