Inflation Rises Again: May Be 'End Of The Road' For Interest Rate Cuts, Expert Says

The Personal Consumption Expenditures (PCE) price index, which is the Federal Reserve's preferred measure for tracking inflation, increased by 2.6% in December 2024. This latest data, released on Friday, was in line with expectations but marks the third consecutive rise in annual PCE inflation, following a low of 2.1% recorded back in September of last year.

Expert Insights: In a statement following the release of the data, Federal Reserve Governor Michelle Bowman emphasized the need for patience. She indicated that the Fed should wait for more concrete evidence indicating a decline in inflation before considering further cuts to interest rates. "There is still more work to be done to bring inflation closer to our 2 percent goal. I would like to see progress in lowering inflation resume before we make further adjustments to the target range," Bowman stated, as noted in a report by CNBC.

Bowman remained optimistic about the future, stating, "I do expect that inflation will begin to decline again and that by year-end, it will be lower than where it now stands."

Further Analysis: Joseph Brusuelas, the chief economist at RSM, commented on the gradual progress the Fed is making towards its target of 2% inflation. He noted that policymakers will likely turn their attention to the cooling of rents and service inflation before deciding on any new rate cuts. Brusuelas remarked, "It looks increasingly likely that we may have reached the end of the road on the Fed's current rate cutting campaign."

Another notable perspective comes from Mohamed El-Erian, chief economic advisor at Allianz, who pointed out the ongoing "stickiness" present in some of the Fed’s favored economic indicators. El-Erian highlighted that the recent numbers indicate inflation remains persistently above the Fed’s target, suggesting it may stay elevated for some time.

Notably, recent U.S. data releases featured key economic indicators that are closely monitored by the Federal Reserve. Specifically, the headline PCE for December remained unchanged at 2.6%, consistent with consensus expectations. Meanwhile, core inflation came in slightly higher at 2.8%.

Market Reactions: Following the release of the inflation data, all major U.S. indices experienced gains. The SPDR S&P 500 ETF Trust (SPY), which tracks the S&P 500 index, rose by 0.65% to reach $608.97. Additionally, the Invesco QQQ Trust (QQQ), which follows the Nasdaq 100 index, saw an increase of 1.28% to $529.78 at the time of reporting.

As inflation continues to evolve, market participants will closely watch for future indications and potential adjustments from the Federal Reserve, shaping the economic landscape ahead.

inflation, interest, economy