US Economic Data Highlights Inflation Concerns Amid Fed's Plans

US Economic Data Highlights Inflation Concerns Amid Fed's Plans

In December, US consumer inflation accelerated on both a monthly and annual basis, although core inflation measures came in below Wall Street’s expectations, according to government data. Meanwhile, producer price growth unexpectedly slowed last month, adding some complexity to the inflation picture.

Federal Reserve Outlook
BMO Capital Markets noted Wednesday that the Federal Reserve still has work to do in combating inflation. The firm expects the Fed to maintain the current federal funds rate later this month and delay rate cuts until the inflation impact of potential new tariffs becomes clearer.

Economic Activity and Manufacturing Decline
According to the Fed's latest Beige Book, US economic activity rose “slightly to moderately” in late November and December, though uncertainties around immigration and tariff policies raised concerns about future growth. The New York Fed reported a surprising contraction in manufacturing activity in January, as orders and shipments declined sharply.

New York Fed President John Williams expressed optimism that inflation would "gradually" return to the 2% target, though he acknowledged that disinflation could be uneven and slow.

Treasury Yields
Treasury yields fell on Wednesday, with the 10-year yield dropping 13.5 basis points to 4.65% and the two-year yield declining 9.5 basis points to 4.27%.

Commodities Rally

• Crude Oil: West Texas Intermediate (WTI) crude surged 3.9% to $80.51 per barrel, driven by optimism over demand.
• Precious Metals: Gold gained 1.4% to $2,719.80 per troy ounce, while silver jumped 4.1% to $31.61 per ounce, supported by expectations of slower Fed rate hikes.

As President-elect Donald Trump prepares to take office Monday, market participants are closely monitoring the economic implications of potential policy shifts on tariffs and immigration.