Key Takeaways
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Inflation likely accelerated in December, putting pressure on the Federal Reserve to keep interest rates relatively high.
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According to the median forecast, consumer prices likely rose 2.6% in December over the year, up from 2.4% in November.
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"Core" inflation, which excludes volatile prices for food and energy, likely rose 2.8%, the same as the month before.
The Federal Reserve's preferred measure of inflation likely accelerated in December, keeping the possibility of lower interest rates off the table for the time being.
A Bureau of Economic Analysis report due Wednesday is expected to show consumer prices rose 2.6% over the past year in December, as measured by Personal Consumption Expenditures, according to a survey of forecasters by Dow Jones Newswires and The Wall Street Journal. That would be the third increase in as many months, up from 2.4% in November to the fastest annual pace since May.
How Will This Affect The Fed?
The report will come too late to influence the Fed's interest rate decision on Wednesday, but it could be a data point for Fed officials to consider at their next meeting in March. Fed officials are widely expected to hold the fed funds rate, which influences borrowing costs on all kinds of loans, at its current range of 4.25% to 4.50% in January.
The Fed has cut its interest rate an entire percentage point from a two-decade high over the course of three meetings starting in September. Before that, the central bank had kept its interest rate high to discourage borrowing and subdue the post-pandemic burst of high inflation. It began relaxing it when it looked like inflation had nearly cooled off to the 2% annual rate, where the Fed aims to stabilize consumer price increases.
But since then, stubborn inflation has likely put any further rate cuts on ice for the time being, and the fed funds rate remains higher than it usually has been over the past decade.
Financial markets will also watch "core" inflation measures since Fed officials pay close attention to those figures when setting interest rates. Core inflation excludes prices for food and energy, which can fluctuate from month to month for reasons that have little to do with broader inflation trends. Core inflation is expected to rise 2.8% over the year in December, the same as in November, and still above the Fed's target.
PCE inflation is a separate measure from the Consumer Price Index, which released data for December earlier in the month. The CPI rose in December, but the core measure cooled. The two inflation measures often move in the same direction but can sometimes show diverging trends because they are calculated differently.
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