Stocks rose on Wednesday after the December CPI finally showed some relief in core inflation and investors calibrated Fed rate cut bets.
But the threat of sticky prices still looms ahead of a regime change in Washington when President-elect Donald Trump takes office next week. And economists largely agree that the fight to curb inflation is far from over.
“Inflation has not been stable,” Claudia Sahm, chief economist at New Century Advisors and former Federal Reserve economist, told Yahoo Finance’s Morning Brief. “It’s been pretty uneven.”
Although inflation has been slowing, it has remained above the Federal Reserve’s 2% annual target. Higher costs for housing and basic services like healthcare and insurance have contributed to stubborn readings in recent months, with consumers simultaneously feeling the pressure in grocery stores and at the pump as well.
“I don’t think we’re completely out of the woods,” Ed Yardeni, president of Yardeni Research, told Yahoo Finance’s Market Domination Overtime. “We have to remember that towards the end of 2023, there were disinflation trends. And 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 price pressures to some extent, but underlying trends have shown continued rigidity in the categories on which most households depend. That makes the Fed’s job even harder to do.
“It’s a bit of a respite to get some ‘no no’ bad news,” Sahm said, referring to December’s slowdown in housing inflation and monthly core prices. But “it’s really not a game-changer. It’s a lot more than we’ve seen with month-to-month volatility mixed in.”
And volatility will likely increase when Trump takes office on Monday.
Trump’s proposed policies, such as high tariffs on imported goods, tax cuts for corporations and restrictions on immigration, are considered inflationary. And those policies could further complicate the central bank’s path forward on interest rates.
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