Federal Reserve policymakers may be able to reduce interest rates a couple of times this year, traders bet on Wednesday, after a government report helped allay fears that inflation was accelerating in the final full month of Joe Biden's presidency.
The core consumer price index, which excludes food and energy prices and is seen as a gauge of underlying inflation pressures, rose 0.2% month-over-month in December, a Labor Department report showed. Economists had penciled in a 0.3% rise.
Traders of interest-rate futures still see the Fed waiting until June to deliver a first rate cut, but are now pricing about even odds the central bank will follow with a second rate cut by year's end. Before the report, interest-rate futures reflected bets on only a single reduction this year.
"There's still more inflation-fighting work for the Fed to do," wrote BMO senior economist Sal Guatieri after the report. Softer core CPI inflation, he said, gives Fed policymakers some breathing room as they wait for details on the economic policies of incoming president Donald Trump, who takes office on Monday. The central bank "may not resume cutting rates until it gets some clarity on the inflation pass-through of the tariffs that could begin rolling out next week," he wrote.
