Inflation Extends Long Slide To 6.5% in December, Pressuring Fed

U.S. inflation slowed for a sixth consecutive month in December, adding further pressure on the Fed to alter its hawkish rate hike signaling.

U.S. inflation declined in December, and slowed for a sixth consecutive month, data from the Bureau of Labor Statistics indicated Thursday, further cementing the case for an easing in Fed rate policy over the coming months.

The headline consumer price index for the month of December was estimated to have risen 6.5% from last year, down from the 7.1% pace recorded in November and largely in-line with the Street consensus forecast.

On a monthly basis, inflation was down 0.1%, the BLS said, compared to a 0.2% reading in November and the June peak of 1.3%. Street forecasts had projected a 0.1% acceleration.

So-called core inflation, which strips-out volatile components such as food and energy prices, rose 0.3% on the month, and 5.7% on the year, the report noted, with both the annual and monthly reading matching Street forecasts. 

On Wall Street, U.S. stocks reacted to the expected readings by paring earlier gains, with futures tied to the S&P 500 indicating a 2 point opening bell dip and those linked to the Dow Jones Industrial Average suggesting a 30 point bump.

Benchmark 10-year Treasury note yields were up 1 basis points to 3.514% in volatile trading while 2-year notes were pegged at 4.174%. The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.23% lower at 102.950, near the lowest since early July.

The CME Group’s FedWatch is now pricing in a 77.3% chance of a 25 basis point Fed rate hike on February 1, up from 62.6% last week and 35.1% in early December.

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