U.S. Inflation Slowdown Reshapes Rate Expectations Amid New Pressures from Trump Administration

Recent U.S. inflation data revealed an annual increase in the Consumer Price Index (CPI) to 2.9% in December 2024,
up from 2.7% in November, aligning with forecasts.
Meanwhile, core inflation, which excludes food and energy prices, slowed to 3.2% from 3.3%,
marking its first decline since July of the same year.

Content

Inflation
The Federal Reserve
Trump
Market Reactions
Long-Term Concerns

Inflation

On a monthly basis, the overall CPI rose by 0.4% in December, higher than the 0.3% increase recorded in November.
Core inflation rose by only 0.2%, reflecting a clear slowdown compared to previous months.
This growth was driven by higher housing costs, used and new car prices, and airfares,
despite declines in personal care and communication expenses.

The Federal Reserve

Impact of Inflation Data on Fed Policy
The new data has reshaped market expectations for the Federal Reserve’s interest rate trajectory in 2025.
With inflationary pressures easing slightly, futures traders are now pricing in a 50% probability of two rate cuts by the end of the year,
with the first expected in June.

Prior to the report, expectations centered around a single quarter-point rate cut for the year,
highlighting the data’s influence on economic outlook adjustments.

Trump

Anticipated Trump Administration Policies and Their Potential Impact
As President-elect Donald Trump’s inauguration approaches, concerns are mounting over
the potential inflationary impact of his proposed economic policies.
Trump’s plans include imposing high tariffs on imported goods, cutting corporate taxes,
and restricting immigration—factors that could drive up production costs and consumer prices.

Some economists warn that these policies might complicate the Federal Reserve’s efforts
to maintain long-term economic stability by balancing inflation and unemployment.

Market Reactions

Following the inflation report, U.S. equity futures rose, reflecting relative optimism about potential Fed rate cuts.
Meanwhile, the yield on 10-year Treasury bonds increased by 3 basis points,
exceeding 4.7%, signaling continued concern over long-term inflation trends.

Long-Term Concerns

Despite the relative slowdown in core inflation, it remains above the Federal Reserve’s 2% target.
Additionally, Trump’s proposed policies could complicate the economic equation by potentially sparking a new wave of inflation.

Analysts point out that the next inflation report will play a critical role in shaping monetary policy decisions.
As discussions continue about the measures Trump’s administration might implement,
the U.S. economy remains on edge, anticipating potential developments in the new year.

U.S. Inflation Slowdown Reshapes Rate Expectations

U.S. Inflation Slowdown Reshapes Rate Expectations

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