Inflation Surge Sparks Federal Reserve's Cautious Approach

U.S. inflation saw its highest rise in eight months in December due to robust consumer spending. This may delay the Federal Reserve's interest rate cuts despite uncertainties stemming from the economic impacts of President Trump's policies. The core inflation rate stalled, impacting monetary easing forecasts.

U.S. inflation recorded its steepest increase in eight months during December, driven by strong consumer spending on goods and services, indicating that the Federal Reserve may not be in a hurry to lower interest rates anytime soon. According to a report from the Commerce Department, while there was a modest rise in prices excluding food and energy, the overarching core inflation rate has not decelerated since October, stalling disinflation progress in the fourth quarter.

The central bank held interest rates steady for the first time since it began its easing policy cycle in September. The official policy statement omitted the phrase about inflation progressing toward the Fed's 2% target. The inflation outlook remains uncertain, partly due to President Donald Trump's fiscal, trade, and immigration policies, which are creating significant economic speculation. Chief economist Carl Weinberg of High Frequency Economics noted that the Fed predicts a slower pace of monetary easing, given that inflation is barely reaching target levels amidst economic uncertainties.

As per the Bureau of Economic Analysis, the Personal Consumption Expenditures (PCE) Price Index increased by 0.3% in December, aligning with economist predictions. This is the largest uptick since April, influenced by increased costs of motor vehicles, gasoline, and other energy goods. Despite certain sectors such as furnishings experiencing price declines, consumer spending continues to bolster the economic growth trajectory into the first quarter, although a lower savings rate might temper future spending increases.

(With inputs from agencies.)