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Stocks rallied Wednesday after December’s CPI print finally showed some relief in core inflation and investors calibrated Fed rate cut bets.
But the threat of sticky prices still looms in the face of a regime change in Washington when President-elect Donald Trump takes office next week. And economists largely agree that the fight to curb inflation is far from over.
“It hasn’t been steady on inflation,” Claudia Sahm, chief economist at New Century Advisors and former Federal Reserve economist, told Yahoo Finance’s Morning Brief program. “It’s been quite uneven.”
Although inflation has been slowing, it has remained above the Federal Reserve’s 2% target on an annual basis. Higher costs for shelter and core services like medical care and insurance have contributed to stubborn readings in recent months, with consumers simultaneously feeling the pinch at grocery stores and also at the pump.
“I don’t think we’re completely out of the woods here,” Ed Yardeni, president of Yardeni Research, told Yahoo Finance’s Market Domination Overtime. “We have to remember that towards the end of 2023, there were disinflation trends. And then we got into 2024 and we saw a little bit of a reversal of that.”
Rising wages and a strong labor market have somewhat offset recent pricing pressures, but underlying trends have shown continued stickiness in categories that most households rely on. That makes the Fed’s job even tougher to pull off.
“It’s a bit of a breather to get some ‘not not’ bad news,” Sahm said, referencing December’s deceleration in shelter inflation and monthly core prices. But “it’s really not a game changer. It’s a lot more of what we’ve seen with the month-to-month volatility mixed in.”
And volatility will likely pick up with Trump set to take office on Monday.
Trump’s proposed policies, such as high tariffs on imported goods, tax cuts for corporations, and curbs on immigration, are seen as inflationary. And those policies could further complicate the central bank’s path forward for interest rates.
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