US Inflation Rises To 2.9% In December 2024, Impacting Dollar And Fed’s Policy Outlook

The US inflation, as measured by the Consumer Price Index (CPI), increased by 2.9% year-over-year in December 2024, up from 2.7% in November 2024. This was in line with market expectations. On a monthly basis, the CPI rose by 0.4% in December, following a 0.3% increase in November.

The news of rising inflation had a notable impact on the financial markets, as the US Dollar Index (DXY) broke below the 109.00 support level, hitting multi-day lows immediately after the release of the CPI data.

Analysts had predicted that the December CPI would show a modest increase to 2.9%, driven by a slight uptick in core inflation to 3.3%. The data also confirmed that goods deflation, particularly in the areas of durable goods and energy, helped counterbalance a likely rebound in housing inflation.

Despite the December inflation report confirming a slight increase in the CPI, the Federal Reserve is expected to leave interest rates unchanged in its January 2025 meeting. According to market expectations, there is a 97% probability that the Fed will refrain from making any changes to interest rates at this meeting.

The impact of these inflation figures on US monetary policy will likely play a significant role in shaping future Federal Reserve decisions. The central bank has faced ongoing challenges in managing inflation, especially with the pressures of a strong labor market, economic uncertainty, and shifts in trade and immigration policies.

In a preview of the market’s reaction to the report, TD Securities analysts noted that while core inflation showed signs of stabilizing, deflationary forces from goods were partially offset by rising housing inflation. With inflationary concerns persisting, markets continue to anticipate that the Fed will hold rates steady for the time being, keeping the outlook for the US Dollar stable.

Meanwhile, concerns about potential shifts in US economic policy under the incoming Trump administration, including stricter immigration policies and tariffs, may continue to exert upward pressure on inflation. With the US Dollar remaining volatile, investors are likely to continue monitoring these developments closely.

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