Stocks rallied Wednesday after December’s CPI print finally showed some relief in core inflation and investors calibrated Fed rate cut bets.
But the specter of sticky prices still looms within the face 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 removed from over.
“It hasn’t been regular on inflation,” Claudia Sahm, chief economist at Latest Century Advisors and former Federal Reserve economist, told Yahoo Finance’s Morning Transient program. “It has been quite uneven.”
Although inflation has been slowing, it has remained above the Federal Reserve’s 2% goal on an annual basis. Higher costs for shelter and core services like medical care and insurance have contributed to stubborn readings in recent months, with consumers concurrently feeling the pinch at grocery stores and also on the pump.
“I do not think we’re completely out of the woods here,” Ed Yardeni, president of Yardeni Research, told Yahoo Finance’s Market Domination Extra time. “Now we have to do not forget that towards the tip of 2023, there have been disinflation trends. After which we got into 2024 and we saw just a little little bit of a reversal of that.”
Rising wages and a robust labor market have somewhat offset recent pricing pressures, but underlying trends have shown continued stickiness in categories that the majority households depend on. That makes the Fed’s job even tougher to drag off.
“It is a bit of a breather to get some ‘not not’ bad news,” Sahm said, referencing December’s deceleration in shelter inflation and monthly core prices. But “it’s really not a game changer. It’s lots more of what we have seen with the month-to-month volatility mixed in.”
And volatility will likely pick up with Trump set to take office on Monday.
Trump’s proposed policies, reminiscent of high tariffs on imported goods, tax cuts for companies, and curbs on immigration, are seen as inflationary. And people policies could further complicate the central bank’s path forward for rates of interest.