Inflation Approaches Fed’s Target Rate Sparking High Hopes of a Soft Landing

December saw a modest reversal of what appeared to be the direction of inflation over the past few months, the Consumer Price Index for All Urban Consumers (CPI-U) increasing 0.3% on a seasonally adjusted basis versus the 0.1% in November and remaining unchanged in October after increasing 0.4% in September. However, the so-called core CPI in December, which excludes food and energy and is considered a better predictor of inflation’s future path than the overall number, increased 0.3% — the same monthly increase as November. Core prices increased 3.9% from December 2022, representing a moderate improvement of the 4% increase during the 12-month period ending November 2023. Plans by the Federal Open Market Committee (FOMC) to hold their policy rate steady at their next meeting at the end of January will remain unchanged, with some analysts thinking interest rate cuts could occur after that if monthly inflation readings remain mild. However, some economists caution that the resilience of the U.S. economy due in part to consumer spending holding up well could stall the pace of improvement in inflation.