Macquarie reaffirmed its expectation that the Federal Open Market Committee (FOMC) will implement a single rate cut of 25 basis points following the latest US Consumer Price Index (CPI) data.
Headline CPI remained strong in December, rising 0.4% from the previous month, driven by high food and energy prices, continuing the accelerating trend seen since mid-2024.
In contrast, the core CPI, which excludes volatile food and energy prices, showed a softer 0.23% month-on-month increase, the lowest since July.
Macquarie saw this as a positive development, especially as core PPI sub-components released earlier this week pointed to the possibility of a higher inflation reading. The annual core CPI inflation rate remained stable at 2.9%.
Macquarie analysts forecast that the core personal expenditure index (PCE), the Federal Reserve’s preferred measure of inflation, is likely to mirror the recent performance of the core CPI.
They also expect core CPI inflation to ease modestly in the first quarter of the year, supported by favorable base effects and monthly core readings similar to December. However, they warn that the threatened tariffs could pose a greater risk to inflation beyond the current forecast horizon.
The investment bank says the FOMC is likely to cut interest rates just one more time by 25 basis points, predicting that the most likely time for that will be March or May.
Macquarie also notes that risks are tilted towards a later rate cut date.
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