Upcoming CPI Report May Impact Fed's 2025 Rate Cut Plans
Washington, Monday, 13 January 2025.
The January 15 CPI report could show rising inflation, possibly affecting the Federal Reserve’s 2025 rate cut expectations and creating market volatility.
Market Anticipation Builds
Financial markets are bracing for potential turbulence as the December 2024 Consumer Price Index (CPI) report, scheduled for release on January 15, 2025, approaches [1]. Analysts expect year-on-year total CPI to rise to 3 from 2.7%, while core CPI could increase to 3.4 from 3.3% [1]. This anticipated acceleration in inflation rates comes after recent economic indicators have already dampened expectations for Federal Reserve rate cuts, with the December jobs report showing a robust gain of 256,000 jobs and unemployment dropping to 4.1% [2][6].
Fed’s Rate Cut Trajectory Under Scrutiny
The Federal Open Market Committee (FOMC) has already reduced its projected rate cuts for 2025 to just two 0.25% reductions [1][7]. The strong December employment data has effectively eliminated the possibility of a January rate cut, with the probability dropping to just 2.7% [7]. Market analysts are particularly focused on this upcoming CPI report as it could further reduce expectations for rate cuts throughout 2025 [1]. The Federal Reserve’s current benchmark rate stands at 4.25%-4.5%, and they are expected to maintain this level at their January 29, 2025 meeting [3].
Economic Indicators Show Mixed Signals
Recent economic data presents a complex picture for policymakers. The ISM Non-Manufacturing Index increased to 54.1 from 52.1, indicating continued growth in the services sector [1]. Meanwhile, weekly initial jobless claims have dropped to 201,000, and there are approximately 8.1 million open jobs [1][7]. The Atlanta Fed’s GDPNow tool estimates Q4 2024 GDP growth at 2.7% [1], suggesting economic resilience that could complicate the Fed’s inflation-fighting efforts.
Market Impact and Future Outlook
If the CPI report confirms accelerating inflation, markets could face significant adjustments. Analysts anticipate potential increases in the dollar value and bond yields, which could negatively impact equity prices and industrial commodity values [1]. Looking ahead to Q2 2025, some economists suggest that base effects might lead to easing inflation rates [7], but the immediate focus remains on the January 15 report and its implications for monetary policy [1][2].