December's Consumer Price Index (CPI) report came in hotter than expected, rising 0.3% month-over-month and 3.4% annually and heightening concerns over whether the inflation print could delay interest rate cuts by the Federal Reserve.
Bank of America Global Research US Economist Stephen Juneau joins Yahoo Finance Live to weigh in on how the Fed could react to this report.
Juneau was not surprised at the report and states that rising inflation “kind of keeps the door open” for a rate cut as soon as March, which other economists believe is still too early a forecast.
Juneau acknowledges a “dichotomy in the data” between core services and shelter costs, but does not see it as enough of a deterrent for the Fed to ease off of its stance.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Eyek Ntekim.
Video Transcript
SEANA SMITH: So let's get into this report, the reaction that we're seeing play out in the equities markets, also the bond markets for that. We want to bring in Stephen Juneau. He's Bank of America Securities' US economist. It's great to have you here. So just the first reaction to this hotter than expected inflation print that we got out here this morning. What do you think this signals then for the Fed? Is it enough to potentially delay cuts?
STEPHEN JUNEAU: I don't think it's enough to delay cuts. So I think it was about in line with the ballpark of our estimates. It's about a few basis points off in terms of our core print. So really, I would say for the Fed, we're looking for a March cut to kick off the cutting cycle. This kind of keeps the door open. It definitely doesn't slam the door shut. If we had seen something like a 0.4% on core.
One of the big reasons for the firmer print is that, at least relative to our expectations is that used car prices actually increased. We were looking for a decrease there. But we know that declines in used car prices are in the pipeline. So if we didn't get them this month, we're probably going to get them in January or February. So you're going to see that kind of come off. The big concern for the Fed, I think, is that there's still this dichotomy in the data.
Core goods prices are deflating. You still saw that again this month. That's supply side-driven. It's not necessarily driven by the Fed. But core services remain firm and shelter really remains firm. And we really need to see progress on services to really feel confident that we're going to get back down to 2% on a persistent basis. But that doesn't mean that the Fed can't start to gradually kind of ease off their restrictive stance.