U.S. core CPI growth in December lower than expected, bets on rate cuts slightly warming up.

The data released on Tuesday showed that the year-on-year increase in US CPI in December was 2.7%, in line with market expectations and previous values; the month-on-month increase was 0.3%, also in line with market expectations and previous values. The core CPI, excluding items with significant volatility such as food and energy, had a year-on-year increase of 2.6%, lower than the market expectation of 2.7%, but in line with previous values; the month-on-month increase was 0.2%, lower than the market expectation of 0.3%, but in line with previous values. Due to stable inflation and core CPI lower than market expectations in December, traders increased their bets on a Fed rate cut. However, the market still generally expects the Fed to keep the federal funds rate unchanged in the range of 3.50% to 3.75% at the policy meeting on January 27-28. According to the CME Group's "FedWatch" tool, traders currently bet with a 95% probability that the Fed will stand pat at its policy meeting at the end of this month. Additionally, traders still expect a rate cut in June as the most likely outcome. According to the latest data, the probability of a rate cut in April by the Fed is about 42%, higher than the 38% before the release of the December CPI data. After the data release, the US Dollar Index (DXY) fell in the short term, now trading at 98.95. Spot gold rose by about $10 per ounce to $4625.29 per ounce. US stock index futures turned higher, with Dow futures up 0.01%, S&P 500 futures up 0.12%, and Nasdaq futures up 0.16%. Currently, there is a division among Fed officials on whether to prioritize inflation or risks in the job market. This latest inflation report released on Tuesday will be used to assess how businesses are passing on tariff-related costs to consumers. The December CPI data is the first complete assessment of inflation trends in several months. Due to the federal government shutdown last fall, the Labor Department was unable to gather price data on-site, resulting in the use of technical methods to handle missing data in the previous inflation report. Although inflation rates have slowed compared to years ago, prices for essential items such as food and insurance remain significantly higher. The December CPI data marks a mild overall inflation in 2025, despite a slight increase in summer inflation, the magnitude is limited. Market analyst Chris Anstey stated that considering the suspected measurement errors in the data from October and November, a rebound in prices was expected in December, so a 0.2% month-on-month increase in core CPI seems much milder. The analyst also added that after the CPI data was released, the yield on the US two-year Treasury bonds slightly decreased, by only around 3 basis points. This does not mean that the data will prompt the Fed to cut rates, but on the surface, this change does indicate a positive signal for the Fed.