The euphoria that has taken over the stock market since the election is starting to slow. Now, investors are turning their attention back to the economy.
This morning’s Consumer Price Index (CPI) figure showed inflation increased 2.6% over the last 12 months. Month over month, the inflation figure increased 0.2%. Both numbers were in line with expectations.
Diving in a bit deeper, energy costs fell 4.9% over last year while food prices were up 2.1%. Both components are often talked about because they’re felt in everyday life. If they continue their current trend lower, this should help boost consumer confidence as well as the general economy.
With the overall CPI reading still above the Federal Reserve’s 2% target, the central bank could be less aggressive with its rate-cutting cycle in early 2025. However, there’s one component that remained sticky and prevented inflation from falling further…
I’m talking about shelter inflation.
Shelter makes up about one-third of the overall CPI number. It increased 0.4% between September and October and is up 4.9% year over year. Home prices and rents have fallen in other statistics, but for some reason that hasn’t flowed through to the CPI reading.
Stocks were little changed this morning as investors try to decide if inflation will continue moving lower – or if this is as good as it gets.
There’s some concern that more government spending from Trump’s administration could lead to higher inflation and rates next year. Yet stocks are sitting at their best levels ever this week.
Looking ahead to 2025, I believe inflation will hang in the 2% to 3% range and that the Fed will continue to lower rates at a steady pace of 25 basis points (0.25%) per meeting. According to CME Group’s FedWatch Tool, there’s currently an 82% chance the central bank lowers rates by that much at the December 18 meeting – and only a 26% chance of another cut in January.
That’s when things could start to get volatile…
Will the Fed disappoint investors by pausing its rate-cutting cycle in January? There’s a lot of time between now and then. So I’ll save my prediction for when we get closer.
Before I leave you to enjoy your day, here’s one last thing worth noting…
Bitcoin (BTC-USD) and cryptos in general are on fire right now. The world’s largest crypto traded above $93,000 this morning and is once again the best-performing asset this year.
I’ve been calling for “Bitcoin 100K” for some time now. And I think we’re inching closer to that milestone.
Who knows, maybe we’ll see the crypto finally break through that level as soon as this week.
Here’s to the future,
Matt McCallEditor, Market Insights
The post Inflation Is Trending Lower – But Will It Continue? appeared first on Centurion Publishing.
