Stocks rose on Wednesday after December CPI data showed some easing in core inflation and investors adjusted expectations for Fed rate cuts.
But the threat of higher prices remains looming in the face of a change of government in Washington, where President-elect Donald Trump takes office next week. And economists generally agree that the fight to curb inflation is far from over.
“Inflation is not stable,” Claudia Sahm, chief economist at New Century Advisors and a former Federal Reserve economist, told Yahoo Finance’s Morning Brief program. It was quite uneven.
Although inflation has slowed, it remains above the Federal Reserve’s 2% annual target. The metrics have been strong in recent months due to rising costs for core services like shelter, health care and insurance, with consumers feeling the pinch at grocery stores and grocery stores alike.
“I don’t think we’re completely out of the woods,” Ed Yardeni, president of Yardeni Research, told Yahoo Finance Market Domination Extension. “You have to remember that towards the end of 2023 there was a disinflationary trend, and then as we entered 2024 we saw a bit of a reversal of that.”
Rising wages and a strong labor market have offset some of the recent price pressures, but the underlying trend remains resilient in the categories on which most households depend. That makes it even more difficult for the Fed to do its job.
“It’s a bit of a breather to get some ‘not bad’ news,” Sahm said, referring to December’s deceleration in shelter inflation and monthly core prices. But “this isn’t really a game changer. It’s much more of what we’ve seen with month-to-month volatility mixed in.”
And with President Trump set to take office on Monday, volatility is likely to rise further.
President Trump’s proposed policies, including high tariffs on imported goods, tax cuts for businesses and immigration restrictions, are seen as inflationary. And such policies could further complicate the central bank’s future direction of interest rates.
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