MarketMoodz
Fed’s preferred inflation stays sticky in December, rate path unclear
The December print shows the Fed’s preferred inflation gauge rose 0.4% month over month, keeping the rate path uncertain. With headline PCE at 2.9% and core PCE near 3%, policy expectations remain higher-for-longer as services inflation stays stubborn. Markets are recalibrating as investors digest the stickier-than-expected data.
Key Takeaways
- December PCE rose 0.4% MoM, lifting the YoY rate to 2.9%
- Core PCE rose 0.4% MoM and 3.0% YoY, signaling persistent price pressures
- Services prices rose 3.4% YoY while goods prices rose 1.7% YoY, underscoring a services-driven inflation dynamic
- Personal savings rate fell to 3.6% in December, suggesting resilient consumer demand
People Involved
Entities Involved
- Federal ReserveMonetary policy authority
- LSEG EconomistsConsensus economists referenced by markets
MarketMoodz Analysis
Investors should recalibrate as sticky PCE raises the odds that the Fed keeps rates higher for longer. Bond yields may stay elevated and equities could face headwinds, especially if the market had priced in a quicker pivot. The 0.4% MoM rise in December and a core pace near 3% imply ongoing pass-through from services to overall inflation.
Historically, the PCE price index has swung between cooling and renewed strength, but the December print reinforces a two-speed inflation dynamic: services prices remain the stubborn component even as goods inflation eases. That dynamic explains the Fed’s emphasis on the core measure while still watching the headline for policy guidance and communications.
What to watch next: the BEA revisions and the January PCE release, along with ongoing Fed commentary. If core PCE remains near 3% into year-end, rate expectations stay elevated; a cooler core could repricem risk assets and ease funding costs for riskier assets.
Source: Original Article