The Federal Reserve wants to see more evidence that inflation is easing before resuming interest rate cuts. The latest data presented a mixed picture.
The central bank’s preferred inflation measure, released on Friday, climbed 2.6 percent in December from a year earlier, faster than its 2.4 percent rate in November and quicker than the central bank’s 2 percent target. Compared to the previous month, prices are up 0.3 percent.
After stripping out volatile food and fuel costs, “core” inflation was 2.8 percent, in line with its previous reading, data from the Commerce Department showed on Friday.
Price pressures have been a focal point for the Fed as it debates how quickly to resume rate cuts after it decided this week to take a breather. Since September, rates have come down by a percentage point, and now hover between 4.25 percent to 4.5 percent.
Beneath the headline figures, the details suggested that underlying inflation has stabilized. On a monthly basis, core inflation rose 0.2 percent, roughly in line with November’s increase.
Jerome H. Powell, the Fed chair, said that in order for the Fed to consider rate cuts again, it would need to see further progress on getting inflation down or labor market weakness.
The latest data supports the Fed’s view that it does not need to be in a hurry to lower rates at this point. The economy has yet to falter, ending last year on a strong note with U.S. gross domestic product growing at a 2.3 percent annual rate in the fourth quarter once adjusted for inflation. The labor market has held up well too, bolstering officials’ confidence that a recession remains a distant prospect.
Added uncertainty about President Trump’s economic policies has also muddied the outlook. Mr. Powell told reporters this week that officials were in a “mode of waiting to see what policies are enacted.”
“We need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be,” he said.
Most economists expect sweeping tariffs of the kind that Mr. Trump has proposed — including 25 percent levies on Mexico and Canada beginning this week — to raise consumer prices to some degree. Over time, they also think they will be detrimental to growth.
Against this backdrop, investors largely expect the Fed to lower rates twice more this year, or a total of half a percentage point, beginning in June. For his part, Mr. Powell has hinted at his support for additional rate cuts, characterizing the Fed’s current policy settings this week as “meaningfully restrictive,” or helping to keep a lid on inflation.
