Core CPI rises less than forecast as inflation pressures ease slightly in December
New data from the Bureau of Labor Statistics out Wednesday showed that a key inflation metric eased for the first time since July.
On a “core” basis, which strips out the more volatile costs of food and gas, the December Consumer Price Index (CPI) climbed 0.2% over the prior month, a deceleration from November’s 0.3% monthly gain. On an annual basis, prices rose 3.2%.
Prior to December’s print, core CPI had been stuck at a 3.3% annual gain for the past four months. It was the first time since July that year-over-year core CPI saw a deceleration in price growth.
The print is the latest economic data that the Federal Reserve will consider before its next interest rate decision later this month. Stocks rallied in the wake of the report with the 10-year treasury yield (^TNX) falling 12 basis points to trade below 4.7%.
“Markets reacted positively this morning for a good reason: the Federal Reserve is ok with watching the headline CPI go up temporarily if that increase does not spill over into the core CPI, and this is what happened in December.”
Headline consumer prices rose as forecast last month. The CPI increased 2.9% over the prior year in December, an uptick from November’s 2.7% annual gain in prices. The yearly increase matched economist expectations.
The index rose 0.4% over the previous month, ahead of the 0.3% increase seen in November and also on par with economists’ estimates.
Seasonal factors like higher fuel costs and continued stickiness in food inflation kept the headline figures elevated.
Core inflation has remained stubbornly elevated due to higher costs for shelter and services like insurance and medical care. Used car prices also saw another strong uptick for the third consecutive month, rising 1.2% in December after a 2% monthly gain in November.
Although inflation has been slowing, it has remained above the Federal Reserve’s 2% target on an annual basis.
“It hasn’t been steady on inflation,” Claudia Sahm, chief economist at New Century Advisors and former Federal Reserve economist, told Yahoo Finance’s Morning Brief program. “It’s been quite uneven but it is good to see some progress in the right direction. And I think that that’s the big piece of this. We’ve been in a very ‘wait and see’ on the inflation front. And that’s very much where the Fed is lined up.”
“It is a bit of a breather to get some ‘not not’ bad news this morning,” she continued. “But it’s really not a game changer. It’s a lot more of what we’ve seen with the month-to-month volatility mixed in.”
Maybe the problem with the US economy isn’t visa workers or even immigration. Maybe it’s much bigger than that.
A squabble on the right that started on Christmas over certain temporary foreign visa workers and later caught the attention of progressive stalwart Sen. Bernie Sanders may be distracting from what’s happening more and more — an intractable problem the pandemic put into hyper-focus: labor shortages.
From tech workers and teachers to plumbers and healthcare aides, many types of employers across the country are talking about difficulties hiring qualified workers — even as pandemic-induced shortages subside.
With the native-born US unemployment rate at 3.7% — slightly lower than the foreign-born rate — and the economy adding 256,000 jobs last month, the issue doesn’t appear that Americans can’t get jobs. In fact, it seems like there may be more than enough jobs to go around.
That’s a problem if we decide we don’t want foreign workers to fill them.
“If you think about the building blocks of GDP, it’s productivity and population,” said Courtney Shupert, an economist at MacroPolicy Perspectives, a market research firm. “We’ve seen productivity increase, and we’ve also seen population increase, and that allows the US economy to increase quite a bit.”
When Sanders released a statement raising concerns about the H-1B visa program that brings over highly skilled foreign workers, he also acknowledged that the US was in “desperate need of more doctors, nurses, dentists, teachers, electricians, plumbers and a host of other professions.”
His solution — to hire qualified Americans first and create an education system that produces workers to fill those roles — is noble but misses the big, looming problem. The US workforce is aging and there are simply not enough people in our younger generations to fill in the gaps left behind by the behemoth baby boom generation.
And even though retirees are no longer working, they still require goods and services and rely on working-age adults to produce them, a dynamic called “old-age dependency.” Boomers, too, are pretty wealthy, so their consumption likely will be higher than previous generations.
The shortage has already started. Google a profession and the words “shortage in US” and see what comes up. Kent State University has an entire fact sheet on “the accountant shortage in the United States,” while Morning Brew explains why the “plumber shortage is gumming up the US economy.” Both note that retiring professionals is a big factor behind the shortfalls.
The names of the programs allowing foreigners to work in the US read vaguely like vitamin bottles: H-1B, P-2, H-2A, among others.
Overall, the US offers over two handfuls of visa programs, denoted by a letter or combination of a letter and number, for workers abroad to come stateside for employment in a nonimmigrant capacity. Some are considered temporary workers, while others are designated as other types of visitors. A fistful requires employers to get approval from the US Labor Department first.
Understanding these visa programs and their importance to the US economy and labor force has become more paramount as debates over foreign workers and, ultimately, immigration heat up before president-elect Donald Trump, who made these issues a cornerstone of his campaign, takes office on Jan. 20.
Here’s what to know.
So many visas
The number of visas defined as temporary work ones depends on who you ask. The US State Department designates 11 visa categories as temporary workers, while US Citizenship and Immigration Services (USCIS) counts 22 classifications.
Some people simply aren’t counted as temporary workers by the State Department. These include members of the foreign press, religious workers, and certain professional workers from Mexico and Canada under the US-Mexico-Canada Agreement.
Neither the State Department nor USCIS considers exchange visitors — such as au pairs, foreign interns, or visiting professors or scholars — temporary nonimmigrant workers even though some may be paid. They are called exchange visitors participating in work-and study-based programs and travel on a J-1 visa. In 2023, 316,693 of these visas were issued.
Many temporary work visas require an approved petition from the US Labor Department filed by an employer on behalf of the potential worker. Often this requires the employer to show that these workers don’t suppress US workers’ wages and to demonstrate that no other native-born workers can fill the roles. How long a temporary worker can stay in the US depends on the visa, but most provide a way to extend their initial stay.
All but one allow spouses and children under 21 to get a related visa to travel with the worker. Whether that spouse can work in the US depends on the visa category and classification.
Alphabet soup of visas
The State Department considers these popular visas for temporary workers:
H-1B
Hot in the news recently after billionaire and Tesla CEO Elon Musk and conservative activist Laura Loomer got into a fiery exchange last month over these workers, H-1B workers are either skilled or specialized foreign workers with a bachelor’s degree or equivalent or fashion models “of distinguished merit and ability,” according to the Labor Department.
December jobs report shows unemployment fell to 4.1%, 256,000 jobs added to finish 2024 on high note
The US economy added more jobs than forecast in December while the unemployment rate unexpectedly fell.
Data from the Bureau of Labor Statistics released Friday showed 256,000 new jobs were created in December, far more than the 165,000 expected by economists and higher than the 212,000 seen in November. The unemployment rate fell to 4.1% from 4.2% in November. December marked the most monthly job gains seen since March 2023.
Revisions to the unemployment rate in 2024 also showed the labor market was stronger than initially thought. The cycle high for the unemployment rate had initially been 4.3% in July but that figure was revised down to 4.2% in Friday’s release.
“There is no denying that this is a strong report,” Jefferies US economist Thomas Simons wrote in a note to clients on Friday.
Revisions to the unemployment rate in 2024 also showed the labor market was stronger than initially thought. The cycle high for the unemployment rate had initially been 4.3% in July but that figure was revised down to 4.2% in Friday’s release.
“There is no denying that this is a strong report,” Jefferies US economist Thomas Simons wrote in a note to clients on Friday.
Wage growth, an important measure for gauging inflation pressures, rose 0.3% in December, in line with economists’ expectations and below the 0.4% seen in November.
Compared to the prior year, wages rose 3.9% in December, below 4% in November. Meanwhile, the labor force participation rate remained flat at 62.5%.
The strong picture of the US labor market presented in Friday’s report pushed out investor bets on when the Federal Reserve will cut interest rates next. Traders now see a less than 50% chance of the Fed cutting interest rates until June, per the CME Fed Watch Tool. A day prior, investors had favored a cut in May.
“You’re seeing this steady but slightly cooling labor market trend, which is very encouraging from a Fed perspective,” EY chief economist Gregory Daco told Yahoo Finance. “I think the attention will actually pivot back towards inflation developments over the course of the next three months.”
Stocks sank following the report, with futures tied to all three major averages down nearly 1%. Meanwhile, the 10-year Treasury yield (^TNX), a recent headwind for stocks, added about 8 basis points to reach 4.78%, its highest level since November 2023.
“The problem here now is if you’re looking for rate cuts based on a weakening labor market … stop looking for those,” Steve Sosnick, chief strategist at Interactive Brokers, told Yahoo Finance. “It’s not going to happen in the immediate term.”
Fed officials fretted about ‘likely effects’ of Trump trade and immigration policies
Almost all Federal Reserve officials agreed in their last meeting that “upside risks to the inflation outlook had increased” due in part to the “likely effects” of expected changes in trade and immigration policies, according to meeting minutes released Wednesday.
Fed officials approved a 25 basis point interest rate cut at that December meeting, but it was clear from the minutes that many who signed off on those cuts still had concerns about the path of inflation in the near future.
They noted “the likelihood that elevated inflation could be more persistent had increased,” according to the minutes, even though they still expected the Fed to bring inflation down to its 2% goal “over the next few years.”
“As reasons for this judgment, participants cited recent stronger-than expected readings on inflation and the likely effects of potential changes in trade and immigration policy” — a likely reference to plans already floated by President-elect Donald Trump.
Some economists expect Trump’s policies, which could include steep tariffs and deportations of undocumented immigrants, to put upward pressure on inflation and make any future rate cuts less likely.
Fed officials in December reduced their estimate of 2025 rate cuts to two from a previous estimate of four, based in part on elevated inflation concerns.
Several of the participants in that Dec. 18-19 meeting even “observed that the disinflationary process may have stalled temporarily or noted the risk that it could.”
One official, Cleveland Fed president Beth Hammack, objected to the rate cut “in light of uneven progress in returning inflation to 2 percent” and argued for holding it steady.
A coming clash
A clash between Donald Trump and the Fed could develop in 2025 if the Fed pulls back on any future expected rate cuts due to elevated inflation.
Trump heaped more pressure on the Fed Tuesday during a press conference at his Mar-a-Lago club in Florida.
“Inflation is still raging, and interest rates are far too high,” Trump said, arguing that “we are inheriting a difficult situation from the outgoing administration.”
Federal Reserve governor Chris Waller said Wednesday that he still supports cutting interest rates this year, believing inflation will continue to drift lower despite promises of sweeping tariffs from the new Trump administration.
“I believe that inflation will continue to make progress toward our 2% goal over the medium term and that further reductions will be appropriate,” Waller said during a speech in Paris.
The US dollar (DX=F, DX-Y.NYB) extended its rebound on Wednesday, adding to gains after the currency was on track for a one-week low following a report from the Washington Post on Monday that suggested President-elect Donald Trump won’t commit to an aggressive tariff plan.
But just two days later, CNN reported Trump could declare a national economic emergency to enact universal tariffs, pushing the dollar even higher as equities faltered.
The US dollar “is priced to perfection,” Bank of America’s global rates and currencies research team, led by FX analyst Athanasios Vamvakidis, wrote in a note published on Wednesday. “The USD has rallied strongly since the US election, from an already high level.”
After hitting a September low, the US Dollar Index — which measures the dollar’s value relative to a basket of six foreign currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc — has rallied nearly 9%. Since the election, it has climbed by over 5%.
“In real effective terms, our estimates suggest that the USD ended 2024 at a 55-year high,” Vamvakidis said. “This has been the longest USD uptrend in recent decades, which started in mid-2011.”
The currency’s price action has largely been driven by two main catalysts: Trump’s election and the subsequent Republican sweep, along with the recalibration of future Fed easing in the face of strong economic data.
“American exceptionalism in terms of better economic growth, faster productivity growth, superior equity market performance, and higher yields all act as a collective magnet for attracting capital to the United States,” wrote Blake Millard, director of investments at Sandbox Financial Partners.
Even data that’s often viewed as not so good, like sticky pricing pressures, can be positive for the dollar.
The latest example: Data released on Tuesday showed prices paid in the services sector during the month of December jumped to a nearly two-year high, suggesting the inflation fight is not yet finished.
Traders scaled back rate cut bets as a result, placing a less than 50% chance the central bank cuts rates ahead of its June meeting, per the CME FedWatch Tool. That possibility spooked markets, with all three major indexes closing firmly lower. The dollar, though, instantly rebounded to end the session higher.
“With the Federal Reserve expected to cut rates less than most other major central banks, expected interest rate differentials favor the greenback,” Millard wrote. “Also, tariffs will restrict the flow of goods leading to fewer dollars going abroad and reducing the demand for foreign currency.”
Job openings rose more than economists expected in November, but other signs of cooling in the labor market emerged as fewer Americans left their jobs and hiring continued to slow.
New data from the Bureau of Labor Statistics released Tuesday showed there were 8.1 million jobs open at the end of November, an increase from the 7.84 million seen in October and the highest level of job openings since May 2023.
The October figure was revised higher from the 7.74 million open jobs initially reported. Economists surveyed by Bloomberg had expected Tuesday’s report to show 7.74 million openings in November.
The Job Openings and Labor Turnover Survey (JOLTS) also showed 5.27 million hires were made during the month, down from the 5.39 million made during October. The hiring rate fell to 3.3% from the 3.4% seen in October. Also in Tuesday’s report, the quits rate, a sign of confidence among workers, fell to 1.9% from 2.1% in October.
Oxford Economics lead US economist Nancy Vanden Houten described Tuesday’s release as consistent with a “no hire, no fire” labor market.
The quits rate and hiring rate are now lower than they were before pandemic. These signs of slowing in the labor market have prompted Fed Chair Jerome Powell to describe the labor market as “looser than pre-pandemic.” But he also noted that, for now, the labor market is cooling in a “gradual and orderly way.”
“We don’t think we need further cooling in the labor market to get inflation down to 2%,” Powell said.
Wells Fargo senior economist Sarah House wrote in a note to clients that while the labor market has clearly shown an overall deceleration, it hasn’t proved to be “a [non-linear] deterioration.” This, House said, helps explain why the Fed has reiterated it will be taking a gradual approach to interest rate cuts in 2025 while it waits for further progress on inflation.
“Hiring may be easing up, but it is not collapsing,” House wrote. “And while businesses are not looking for as many workers as they were a year or two ago, they are not laying off workers in droves either.”
A broader update on the state of the jobs market in the US will come on Friday with the December jobs report. Consensus expects the US economy added 163,000 jobs in December, down from the 227,000 additions seen in November. Meanwhile, the unemployment rate is projected to hold steady at 4.2%.
Trudeau resignation opens door to Trump ‘going easy on trade tariffs’ with Canada
Canadian Prime Minister Justin Trudeau resigned as Liberal Party leader on Monday, setting the country up for a new prime minister by late March and potentially resetting its trade relationship with the US during the second Trump administration.
“A new government could be good for [the Canadian dollar], and Trudeau is speeding up the process,” wrote Kyle Chapman, FX markets analyst at Ballinger Group, in an email on Monday.
Chapman argued the election of a conservative prime minister, like Pierre Poilievre, would be more aligned with President-elect Donald Trump’s “hallmarks,” such as “a dislike of deficit spending and a desire for deregulation and tax cuts.” Poilievre has also expressed a strong preference for a hawkish monetary policy and a strong Canadian dollar.
Pressure had mounted in recent weeks as Canada’s party leaders debated how to handle Trump’s tariff threats.
Last month, Deputy Prime Minister Chrystia Freeland resigned, citing internal struggles between herself and Trudeau over Canada’s best path forward. She added that the country can “ill afford” to take on Trump’s tariffs, should they come to fruition.
“A conservative, Trump-aligned leader in Canada could also mean that the US administration becomes more amenable to going easy on trade tariffs,” Chapman said.
The Canadian dollar, often referred to as the loonie in financial markets, had traded at a four-year low against the dollar following Trump’s election win.
Rumors of Trudeau’s departure first began to circulate late Sunday, sending the Canadian dollar (CAD=X) higher against the US dollar (DX=F, DX-Y.NYB).
But the currency’s moves on Monday were more closely tied to Trump’s latest tariff threat than political turmoil, according to analysts.
“I think an important part is to [consider] whether this is an idiosyncratic move in CAD or whether or not this is related to the broad US dollar. I would put this in the latter camp,” Mark McCormick, global head of foreign exchange and emerging market strategy at TD Securities, told Yahoo Finance.
Earlier on Monday, the Washington Post reported that Trump’s team is exploring more limited tariffs than anticipated. Trump had previously pledged to impose blanket tariffs of at least 10% on all trading partners, including a 60% tariff on Chinese imports and 25% levies on Canadian goods.
Immediately following the report, the dollar dropped sharply as markets recalculated the potential inflationary impact of Trump’s plans.
