Dive Brief:
- Core inflation, excluding volatile food and energy prices, rose less than expected last month, affirming the decision by the Federal Reserve in recent months to focus more on shoring up the labor market than on reducing price pressures.
- The core consumer price index increased 0.2% in December and 2.6% for the full year, the Bureau of Labor Statistics said Tuesday. The annual rate matches a four-year low. The CPI including all categories of goods rose 0.3% for the month and 2.7% for the full year. A 0.4% gain in shelter costs in December was the biggest spur to the monthly increase, according to BLS.
- “Core CPI inflation was on the softer side, signaling lower upside risk for inflation,” said Sonu Varghese, global macro strategist at Carson Group, a financial advisory company. “The lower inflation print will allow the Fed to continue focusing on labor market risks,” Varghese said in a note.
Dive Insight:
Fed policymakers, while flagging fragility in the job market, cut the main interest rate by a quarter point three times from September through December last year. The federal funds rate currently ranges between 3.5% and 3.75%.
Hiring by U.S. employers last month fell below expectations, with payrolls expanding by just 50,000, the Bureau of Labor Statistics said Friday.
The unemployment rate edged lower to 4.4% from 4.5% in November, the BLS reported, but still exceeds the 4% level in January 2025.
“Risks to employment have increased as the labor market cooled, while the upside risks to inflation have lessened somewhat,” New York Fed President John Williams said, adding “it is imperative that we restore inflation to the Federal Open Market Committee’s 2% longer-run goal.”
“Monetary policy is now well positioned to support the stabilization of the labor market and the return of inflation to the FOMC’s” target, Williams said Monday in a speech.
President Donald Trump on Tuesday renewed pressure on Fed Chair Jerome Powell to reduce borrowing costs, referring to the below-forecast inflation data and saying in a social media post that Powell should cut the main rate “MEANINGFULLY!!!”
Trump for several months has called on Powell to cut the benchmark rate to as low as 1%, arguing that current interest rates needlessly inhibit economic growth.
The Trump administration since Sunday has come under fire from lawmakers of both parties for launching an investigation of Powell that they said jeopardizes the central bank’s independence.
Both Republican and Democratic senators, along with several former Fed and Treasury top officials, have released statements denouncing a Justice Department probe of Powell for his congressional testimony in June about renovations at central bank headquarters.
“I haven’t seen the case or whatever the allegations or charges are, but I’d say they better be real and they better be serious,” Senate Majority leader John Thune (R-S.D.) said Monday.
“It needs to be resolved quickly because the Fed’s role and the Fed’s independence in shaping monetary policy in the country is something we need to ensure proceeds without political interference,” Thune said, according to The Hill.
