US inflation rose 3.4% in December, a larger-than-expected increase that could delay the prospect of three interest rate cuts the Federal Reserve plans for this year. NY Post Business Reporter Shannon Thaler shares this story.

December’s Consumer Price Index — which tracks changes in the costs of everyday goods and services — came in above the 3.2% figure economists at FactSet expected, and marks an advance from the 3.1% growth reading in November — the lowest monthly reading since June.

The latest inflation figure — more than half of which was driven by persistently stiff housing costs — is significantly lower than the 6.5% advance in December 2022.

Still, there’s a ways to go before inflation is tamped down to the Fed’s 2% target — a rate the US economy hasn’t seen in over a decade.

Fed Chair Jerome Powell has said that the 2% reading likely won’t happen until 2025 after they chose to hold the rate steady following their meeting last month. The central bankers had signaled that they would begin cutting the Fed fund rate — currently between 5.25% and 5.50% — this year.

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Inflation rose higher than expected in December, putting a chill on imminent Fed cuts.

The latest inflation data has sent shock waves through the financial markets, with the Consumer Price Index (CPI) rising by 0.5% in December, surpassing the consensus estimate of 0.4%. This was the largest increase in inflation since July and was driven by rising prices for gasoline, housing, and medical care.

The unexpected surge in inflation has raised concerns about the possibility of the Federal Reserve cutting interest rates in the near future. Many analysts had been anticipating a rate cut in response to slowing economic growth and the ongoing trade tensions between the US and China. However, the higher-than-expected inflation figures have put a dampener on those expectations.

The Fed uses interest rates as a tool to control inflation and economic growth. When inflation is high, the Fed may raise interest rates to help cool down the economy and prevent prices from spiraling out of control. On the other hand, when inflation is low, the Fed may lower interest rates to stimulate economic activity and boost spending.

The December inflation figures have thrown a wrench into the Fed’s plans, as policymakers now face a delicate balancing act. On one hand, they need to keep inflation in check, but on the other hand, they also need to support economic growth and prevent a recession.

The stock market reacted negatively to the inflation data, with the Dow Jones Industrial Average dropping over 200 points in response. Investors are concerned that the Fed may delay or even abandon plans to cut interest rates, which could hinder corporate profits and economic expansion.

The higher inflation figures have also raised concerns about the cost of living for American consumers. With prices for everyday goods and services on the rise, households may find it increasingly difficult to make ends meet. This could have broader implications for consumer spending and overall economic activity.

In the face of these challenges, the Fed will need to tread carefully in the coming months. The central bank will need to carefully monitor inflation trends and economic indicators to determine the appropriate course of action. While a rate cut may still be on the table, the recent inflation data has certainly made the path forward more uncertain.

Overall, the higher-than-expected inflation figures have put a chill on the prospect of imminent Fed rate cuts. The central bank will need to carefully assess the economic landscape and make decisions that will best support sustainable growth and price stability. For now, all eyes will be on the Fed as policymakers grapple with the latest inflation data and its implications for monetary policy.