Stocks rebounded Wednesday after December CPI finally showed some relief from core inflation and investors calibrated their bets on a Fed rate cut.
But the threat of sticky prices continues to loom in the face of regime change in Washington when President-elect Donald Trump takes office next week. And economists largely agree that the fight against inflation is far from over.
“Inflation has not been stable,” Claudia Sahm, chief economist at New Century Advisors and a former Federal Reserve economist, told Yahoo Finance’s Morning Brief program. “It’s been pretty uneven.”
Although inflation has slowed, it has remained above the Federal Reserve’s 2% target on an annual basis. Higher costs of housing and basic services like health care and insurance have contributed to stubborn bottom lines in recent months, with consumers simultaneously feeling the pinch at grocery stores and 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 disinflationary trends. And then we got to 2024 and we saw a slight reversal of that trend.”
Rising wages and a strong labor market have somewhat offset recent price pressures, but underlying trends have shown continued rigidity in the categories most households rely on. This makes the Fed’s job even more difficult to accomplish.
“It’s a bit of a break from some not-bad news,” Sahm said, referring to the deceleration in housing and monthly core price inflation in December. But “it really doesn’t change the game. It looks a lot more like what we saw with monthly volatility.”
And volatility will likely increase as Trump takes office on Monday.
Policies proposed by Trump, such as high tariffs on imported goods, tax cuts for businesses and restrictions on immigration, are considered inflationary. And these policies could further complicate the central bank’s interest rate policy.
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