Market Focus on US Inflation Indicators... "Decision to Adjust Speed of Interest Rate Cuts"

Bloomberg: Experts Forecast 0.2% Rise in Core CPI for December
Strong Labor Market Performance Raises Expectations for Steady Fed Rates
Upcoming Inflation Data to Influence Pace of U.S. Rate Cuts

AFP Yonhap News

The U.S. labor market is showing strong performance, drawing market attention to the upcoming inflation data scheduled for release on the 15th. The results of the inflation report are expected to determine the pace at which the U.S. will adjust interest rate cuts.

On the 10th (local time), the U.S. nonfarm payrolls for December last year increased by 256,000 compared to the previous month, significantly surpassing the Dow Jones expert forecast of 155,000 and the average monthly increase of about 150,000 in the second and third quarters of last year.

The U.S. unemployment rate for December last year was also 4.1%, lower than the expert forecast of 4.2% and the previous month’s 4.2%.

This confirmed the strong performance of the U.S. labor market, supporting expectations that the Federal Reserve (Fed), the U.S. central bank, will hold interest rates steady for the time being.

Additionally, Bloomberg News forecasted that the U.S. consumer price index (CPI) for December last year, scheduled for release on the 15th, will support the Fed’s decision to moderate the pace of interest rate cuts.

According to a Bloomberg survey of economists, the core CPI, which excludes food and energy, for December last year is expected to rise by 0.2% compared to the previous month. The core CPI had increased by 0.3% for three consecutive months through November.

In this case, the annual core CPI for last year is expected to rise by 3.3%, which is the same as the previous three-month figure.

Long-term inflation expectations among consumers have also surged.

According to the University of Michigan’s consumer sentiment survey, 22% of respondents agreed with the statement that purchasing expensive goods now would help avoid future price increases. This proportion is the highest since 1990.

Bloomberg reported that some major banks’ economists, including those at Morgan Stanley, have lowered their forecasts for additional Fed rate cuts following the December employment data release.

They expressed the view that "according to the minutes of the December U.S. Federal Open Market Committee (FOMC) meeting recently released, several members see a risk that the disinflation process (slowing inflation rate) has temporarily paused or may pause, and the December CPI data is likely to support the view that it has indeed paused, reinforcing the argument for a cautious approach to future monetary policy decisions," Bloomberg reported.

Morgan Stanley recently identified the drivers of U.S. economic growth as increases in household net worth, pent-up spending on automobiles, and wage growth exceeding inflation.

Bloomberg expects the retail sales figures for December, to be released on the 16th, to confirm active spending during the year-end holiday season.