Instant view: Mild Dec US PCE inflation won't divert Fed from easing in 2024

NEW YORK (Reuters) - U.S. prices rose moderately in December, keeping the annual increase in inflation below 3% for a third straight month, which could allow the Federal Reserve to start cutting interest rates this year.

The personal consumption expenditures (PCE) price index increased 0.2% last month after an unrevised 0.1% drop in November, the Commerce Department reported on Friday. In the 12 months through December, the PCE price index increased 2.6%, matching November's unrevised gain. Economists polled by Reuters had forecast the PCE price index climbing 0.2% on the month and rising 2.6% year-on-year.

Excluding the volatile food and energy components, the PCE price index gained 0.2% last month after rising 0.1% in November. The so-called core PCE price index increased 2.9% year-on-year, the smallest gain since March 2021.

MARKET REACTION:

STOCKS: U.S. stock futures reversed a tiny loss to a small 0.1% gain BONDS: U.S. Treasury 10-year yield initially ticked higher but were last a bit lower at 4.109%

FOREX: The dollar index was last down 0.28%

COMMENTS:

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

“These are good numbers. Year-over-year inflation came in under 3% and that’s comforting with respect to inflation moving in the right direction as it inches to the Fed’s 2% goal.”

“Personal spending was strong, so that will keep the Fed on hold and remain cautious on cutting rates any time soon.”

“I think the first rate cut will probably happen in the middle to the end of the third quarter.”

“Taken with yesterday’s GDP numbers, this report strengthens the possibility of a soft landing, which continues to gain traction.”

KIM FORREST, CHIEF INVESTMENT OFFICER, BOKEH CAPITAL PARTNERS, PITTSBURGH 

“I think this gives the Fed cover to say what it's been saying, which is, ‘hey, we have to be data-driven’ and I don't know that we're seeing much that would point towards a lower interest rate. They (the Fed) are not going to do anything if the data tells them to stay.”

“But I also don't see anything that's pointing to a higher interest rate, and that's good enough for now.”

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

"The numbers were as expected. That goes in line with what we've been hearing about consumer spending helping to contribute growth in the economy. Now both numbers were up versus what they were in the prior month, but I don't think that is having much  effect on the overall market."

  "The move lower in inflation is likely to happen, but it's going to take a lot more time. But what you are seeing is an economy that has slow growth that could be stifled by 5.25% interest rates or higher. So if you want the economy to continue to do better, you're going to have to adjust interest rates lower. Otherwise, it could be negatively impacted by a rate current rate environment."

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