WASHINGTON, Feb 20 (Reuters) - Underlying U.S. inflation increased more than expected in December, and signs are pointing to a further acceleration in January, which would strengthen ‌expectations that the Federal Reserve would not cut interest rates before June. The personal ‌consumption expenditures price index, excluding the volatile food and energy components, rose 0.4% after an unrevised 0.2% gain ​in November, the Commerce Department's Bureau of Economic Analysis said on Friday. Economists polled by ...

Minneapolis Fed president Neel Kashkari said Thursday he thinks the central bank is “pretty close” to neutral on the level of its benchmark policy rate, implying there may be little room left to cut rates. “We've cut interest rates a bunch in the last couple of years,” Kashkari said during a fireside chat at the Fargo Moorhead West Fargo Chamber of Commerce. “My guess is we're pretty close to neutral on where our monetary policy is, but ultimately, we need to see, where does inflation go? Does it come all ...

Economic Indicators - The Bureau of Economic Analysis (BEA) will publish the Personal Consumption Expenditure (PCE) Price Index on February 20, which is closely monitored by the Federal Reserve and could influence monetary policy for 2026 [1] - The PCE Price Index is preferred by the Fed over the Consumer Price Index (CPI) because it provides a broader measure of inflation and quickly reflects changes in consumer behavior [2] Inflation Trends - Recent CPI data showed consumer prices rose 2.4% annually in January, slightly below the expected 2.5%, with core CPI (excluding food and energy) at 2.5%, the lowest since April 2021 [3] - If the upcoming PCE Price Index confirms a moderation in inflation, it would align with the CPI report, indicating inflation is moving closer to the Fed's target [4] Monetary Policy Implications - A confirmation of moderating inflation would give the Fed room to implement additional interest rate cuts, with the futures market currently pricing in two to three quarter-percentage point cuts in 2026 [5] - Lower interest rates or the expectation of them could positively impact the stock market by reducing borrowing costs for companies and consumers, potentially boosting spending [6]

Core Insights - The 43-day government shutdown has delayed and distorted key economic data, complicating the Federal Reserve's decision-making regarding monetary policy [2][10] - The Personal Consumption Expenditures (PCE) inflation report will not return to its regular schedule until April, covering only October and November data [3][10] - The Consumer Price Index (CPI) was also affected, with October data not collected and November data gathered later than usual, potentially distorting holiday sales data [4][10] Economic Implications - The lack of timely inflation data increases the risk of investors and policymakers being caught off guard when reports are finally released [5][10] - Federal Reserve officials are expected to maintain the current interest rate due to the uncertainty caused by the delayed data [5][10] - Policymakers face a dilemma between keeping interest rates high to combat inflation and lowering them to support the job market [6][10] Data Collection Challenges - The shutdown's effects may persist for months, particularly affecting housing cost measures, as the Bureau of Labor Statistics (BLS) had to estimate changes in rent and home ownership costs [8][10] - A methodological assumption of no inflation in October has led to an understatement of shelter inflation, which may not be corrected until April 2026 [9][10] - The distortion in housing costs could temporarily make inflation appear lower than it actually is, impacting household budgets and inflation calculations [9][10] Current Inflation Trends - Annual core inflation showed a decrease to 2.6% in December from 3% in September, but this may not reflect the true situation due to data distortions [11][10] - The "data blackout" during the shutdown has made it challenging for policymakers to assess the underlying inflation trend [12][10]

Core Viewpoint - The Federal Reserve Bank of Chicago President Austan Goolsbee indicated that the potential for further interest rate cuts could arise if economic indicators continue on their current positive trajectories, particularly regarding inflation data [1][2]. Economic Indicators - Goolsbee highlighted the positive aspects of the recent Consumer Price Index (CPI) report, noting a 0.2% increase over two months from September to November and a year-over-year rise of 2.7%, which was below economists' expectations of a 0.3% monthly increase and a 3.1% year-over-year rise [2][4]. - The CPI report reflects a delayed reporting window due to a recent government shutdown, which did not include the standard one-month change from October to November [2]. Interest Rate Decisions - The Federal Reserve recently announced its third interest rate cut of the year, reducing the benchmark federal funds rate by 25 basis points to a range of 3.5% to 3.75%, following similar cuts in September and October [4]. - Goolsbee expressed discomfort with preemptively front-loading rate cuts before confirming a return to the 2% inflation target, suggesting that rates could be lowered significantly if full employment and stable inflation are achieved [5][8]. Labor Market Concerns - In response to concerns about the U.S. job market and rising unemployment rates, Goolsbee noted that most job market measures, aside from payroll employment, have shown steady but mild cooling [6][7]. - He emphasized the need for assurance that inflationary spikes are transitory and not indicative of a longer-term trend before considering further rate reductions [8].

Economic Data Overview - The Consumer Price Index (CPI) rose to 3.0% in September, slightly up from 2.9% in August but below the expected 3.1% [2] - Monthly price growth was 0.3%, a deceleration from the 0.4% increase in August and below the projected 0.4% [2] - Core inflation, excluding food and energy, cooled to 3.0% in September, down from 3.1% in August and below the expected 3.1% [2] Inflation Drivers - The primary contributor to the CPI increase in September was higher gas prices, while food, shelter, airline fares, recreation, household furnishings, and apparel also saw price increases [3] - Conversely, prices for motor vehicle insurance, used cars, and communication costs declined [3] Consumer Sentiment - The University of Michigan Consumer Sentiment Index fell nearly 3% to 53.6 in October, below the forecast of 55.0, marking the lowest level since May [5] - The decline in sentiment was attributed to ongoing inflation concerns, with younger consumers showing improved sentiment but older demographics experiencing noticeable drops [6] Housing Market Insights - Existing home sales rose 1.5% in September, reaching a seasonally adjusted annual rate of 4.06 million units, aligning with expectations [8] - The median price for existing homes decreased by 1.7% from August, marking the lowest level in five months, although it was up 2.1% year-over-year [9] Market Reactions - The S&P 500 index briefly crossed above 6,800 for the first time, finishing the week with a 1.9% gain [11] - The CME FedWatch Tool indicates a 97% likelihood of a 25 basis point rate cut by the Federal Reserve in the upcoming meeting [12] Upcoming Economic Outlook - The economic outlook remains complex due to the ongoing government shutdown, with private and regional reports expected to provide insights into economic activity [13] - Attention will be focused on the Federal Reserve meeting, which will influence market expectations, alongside housing market reports and manufacturing sector data [14]

Core Insights - Economists anticipate inflation to rise in the fourth quarter due to the impact of President Trump's tariffs on consumer prices [2][8] - The Consumer Price Index (CPI) is projected to increase by 3% year-over-year in the fourth quarter, up from 2.9% in August, marking the highest level since May 2024 [3][8] - Inflation, as measured by Personal Consumption Expenditures (PCE), is expected to reach 3.2% in December, a rise from 2.9% in August, with a forecasted decline starting in 2026 [4][9] Inflation Trends - The CPI is expected to accelerate in the fourth quarter as companies begin to pass on tariff-related costs to consumers [3][8] - The PCE index rose by 2.7% year-over-year in August, indicating a slight increase from 2.6% in July, while core PCE remained stable at 2.9% [4] - A significant portion of tariff costs, estimated at 70%, is being passed on to consumers, with expectations of further increases in the coming months [6][7] Consumer Impact - Rising inflation is affecting household budgets, particularly for essential goods like gas and groceries, with wage increases not being evenly distributed among Americans [5] - Companies have been hesitant to raise prices due to potential loss of business, but surveys indicate a shift towards passing on costs to consumers [6][7]

Economic Indicators - Consumer prices increased by 0.4% in August, which is double the increase from the previous month, resulting in an annual inflation rate of 2.9% [1] - The core consumer price index, excluding food and energy, rose by 0.3% in August, maintaining a 12-month figure of 3.1%, aligning with forecasts [2] Employment Data - Weekly unemployment compensation filings unexpectedly rose to a seasonally adjusted 263,000, surpassing the estimated 235,000, and increasing by 27,000 from the previous period [2]