Dec CPI rises a touch above expectations, keeps Fed on track

NEW YORK (Reuters) -U.S. consumer prices increased slightly more than expected in November as energy costs rose, pointing to an inflation trend that lines up with the Federal Reserve's view for a slower path of rate cuts this year.

The consumer price index rose 0.4% last month after climbing 0.3% in November, the Labor Department's Bureau of Labor Statistics said on Wednesday. In the 12 months through December, the CPI advanced 2.9% after increasing 2.7% in November.

Estimates of economists polled by Reuters called for a monthly increase of 0.3% and 2.9% on a year-on-year basis.

MARKET REACTION:

STOCKS: U.S. stock index futures jumped to extend gains and S&P 500 E-minis were last up 89 points, or 1.5%BONDS: The 10-year U.S. Treasury yield dropped and was last down 12.1 basis points to 4.667%, while the two-year yield was off 9.1 basis points to 4.274%FOREX: The dollar index weakened and was last 0.4% lower to 108.76

COMMENTS:

ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT

"The numbers came in better than expected, and it's giving the market reason to believe the economy can do better - using the nonfarm payrolls report as an example of that - and inflation can come down at least a little bit. There were parts of the overall report where some prices rose a bit, but we can sort of look past that because they're volatile numbers anyway, so those numbers do move month to month.

"So, it's a decent report and it looks like it's going to turn out to be beneficial. It gives the market, after pulling back some, a reason to be a little bit more optimistic."

BRENT SCHUTTE, CHIEF INVESTMENT OFFICER, NORTHWESTERN MUTUAL WEALTH MANAGEMENT COMPANY, MILWAUKEE, WISCONSIN

"There was a growing fear that inflation pressures would cause the Fed to have to even contemplate raising rates in the near term and that's taken off the table just a bit. It doesn't mean that the Fed is going to ease, I think they're on hold. But just in general, you've seen rates rise quite a bit over the past few weeks, which has been a distraction for equity markets. Today's (data) pushes that to the back burner a bit for now.

"That being said, this is not the coast-all-clear. We've had core CPI on a year-over-year basis stuck in the 3.3% - 3.2% range since June of last year and we're still in that area."

"This is a little bit of a relief, but we'll see where we head going forward. It certainly does not make the Fed more likely to ease, but it will ease some of the fears that their next move, at least in the near term, may be a raise in rates."

"The fear of the market was that you'd see a really hot number that would start raising questions about where Fed funds rates head in the future and this appears to be not that number."

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN

"It was a relief to see core inflation come in slightly lower than last month, but consumers are not getting any relief at the pump. Energy prices rose 4.3% for the month, although they are down 3.9% from a year ago. Consumer psyches have been scarred by the high inflation of last few years, so the Fed may err on the side of not cheering this report too much.

"The Fed is going through a long arduous process of rebuilding its credibility, so it will likely spend most of 2025 overreacting to upside surprises to inflation and underreacting to downside surprises with its messaging."

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

"The top line is a little disappointing, but I think that may have been due to food prices. And so if you look at the core, that was a little bit cooler and I guess that's the good news."

"I don't think this changes the outlook for inflation, and I don't think it changes the prospect of the Fed remaining cautious. And so judging from what I can see right now, the dollar is weakening, yields are coming off a bit, and so I suspect the core inflation is what the markets are looking at."

"I don't think the report really changes very much. Bottom line is inflation remains sticky."

OLIVER PURSCHE, SENIOR VICE PRESIDENT, ADVISOR, WEALTHSPIRE ADVISORS, WESTPORT, CONNECTICUT

"We had a good inflation print yesterday, and we had a good one this morning. I think the market reaction is a pivot back to the Fed can lower rates if it wants to, as opposed to being boxed in a corner where higher inflation would keep them from acting. So, the reality is right now investors are looking at the data as kind of a Goldilocks scenario where you have strong corporate earnings, a very resilient and strong economy and lower inflation. You just can't ask for more than that."

CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, NORTHLIGHT ASSET MANAGEMENT, CHARLOTTE, NC (VIA EMAIL)

"We believe the market will be encouraged by the decrease in core inflation, which should alleviate some of the pressure on stock and bond markets, both of which have had a poor start to the year on inflation fears and concerns the Fed would not only stop cutting interest rates, but could even reverse course and begin raising them."

TINA ADATIA, HEAD OF FIXED INCOME CLIENT PORTFOLIO MANAGEMENT, GOLDMAN SACHS ASSET MANAGEMENT, UNITED KINGDOM (VIA EMAIL)

"After recent red-hot data, today's softer than expected core CPI reading should help cool fears of a reacceleration in inflation. While today's release is likely insufficient to put a January rate cut back on the table, it strengthens the case that the Fed's cutting cycle has not yet run its course. With labor market data remaining robust, however, the Fed has scope to be patient and more good inflation data will be required for the Fed to deliver further easing."

(Compiled by the Global Finance & Markets Breaking News team)