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　　Due to factors such as rising energy and housing costs, the consumer price index (CPI) in the United States rose in December 2023. At the same time, many Americans and businesses are still trying to cope with the impact of high prices. According to the analysis, this shows that the road for the Fed to bring inflation back to the 2% target is not smooth, and the timing of starting interest rate cuts is still facing uncertainty.

　　Inflation rose slightly more than expected.

　　According to data recently released by the US Department of Labor, the US CPI rose by 0.3% in December 2023, an increase of 0.2 percentage points from November, slightly higher than the market expectation.

　　The latest inflation rate in the United States is much higher than the 2% inflation target set by the Federal Reserve. Excluding volatile food and energy prices, the core CPI rose by 0.3% month-on-month, which was the same as that of the previous month. The year-on-year increase was 3.9%, the lowest level since May 2021.

　　Specifically, in December last year, energy prices rose after the decline in the previous two months, up 0.4% from the previous month. Among them, the price of gasoline rose by 0.2% and the price of electricity rose by 1.3%. Food prices rose by 0.2% month-on-month, which was the same as the previous month.

　　The latest data shows that the cost of living has increased significantly. The cost of living accounts for a large proportion in the CPI of the United States, accounting for about one third of the index. In December last year, the cost of living rose by 0.5% month-on-month, an increase of 0.1 percentage point over the previous month. In 2023, the index increased by 6.2%.

　　It is reported that only the index to measure the cost of housing ownership accounts for about 25% of CPI, which measures the cost of housing ownership by calculating the rent that homeowners may charge when renting houses. In December, the rent increased by 0.4% and the cost of house ownership increased by 0.5%.

　　In March 2022, the Federal Reserve began to raise interest rates sharply to slow down the pace of price increase, and hoped to reduce the inflation rate to the target level of 2%. The inflation level in the United States has gradually dropped from the 40-year high of 9.1%.

　　There are signs that inflationary pressure will continue to subside in the coming months. According to a recent report by the Federal Reserve Bank of new york, consumers expect the inflation rate to drop to 3% within one year, which is the lowest annual forecast since January 2021. Consumer’s inflation expectation is considered as one of the key indicators to measure the future inflation trend. When consumers are worried that prices will continue to rise, they usually buy goods faster, and this increase in expenditure often fuels inflation.

　　When discussing the inflation prospect at the latest meeting in December, 2023, Fed officials also pointed out in particular that the problem of supply chain backlog, which led to parts shortage and inflationary pressure, has ended.

　　The influence of high prices is still lingering.

　　The Associated Press reported that despite the slowdown in price increases, stable economic growth, low unemployment rate and stable job market, opinion polls show that many Americans are still dissatisfied with the economic situation. Pollsters and economists say that the gap between the basic health of the economy and public perception has never been so wide. One of the main factors is that the worst inflation in 40 years still has a lingering influence on people’s financial situation and psychology. Many people are still dissatisfied with the price increase, and the price level is still 17% higher than before the inflation surge, and it is still rising.

　　In recent months, the growth rate of wages in the United States has exceeded the inflation rate, which means that real wages after inflation adjustment are rising. However, a poll conducted by the Center for Public Affairs Research in November last year showed that about three-quarters of the respondents thought that the economic situation was not good, and two-thirds said that the expenditure had increased.

　　The Associated Press reported that American small businesses are still struggling to cope with high costs. Roberto Torres, a coffee shop owner in Tampa, Florida, said that a 12-ounce latte used to cost $3.50, but now it has risen to $5. In order to save money, he will buy a lot of raw materials, for example, for one year at a time.

　　Scott Christian, the owner of a restaurant in Broken Bow, Oklahoma, also said that in the past two years, he had to raise the menu price three or four times, each time by about 20%. Although food inflation has cooled down recently, Christian is still under pressure to raise wages to attract workers. "Raising prices seems to be the only choice."

　　The timing or delay of the Fed’s interest rate cut

　　Fed officials have previously hinted that it is expected to cut interest rates three times this year. Analysts believe that the latest CPI data shows that the Fed’s road to fighting high inflation is not smooth, the progress of curbing inflation is still slow, and the inflation level in the United States is unlikely to plummet to 2%. The cost of living remains high, or the pace of interest rate cuts by the Federal Reserve is restrained.

　　Many economists believe that slowing the inflation rate from 9% to around 3% is easier to achieve than reaching the Fed’s goal of 2%.

　　Loretta Meister, president of the Cleveland Federal Reserve Bank of the United States, said that the latest inflation data, the interest rate cut in March may be too fast.

　　Vincent Reinhart, chief economist of Dreyfus Mellon, said: "The last mile to curb inflation is a battle." Reinhardt said that because inflation was slightly higher than expected in December last year, and Fed officials still need time to reach an agreement on changing monetary policy, the time for the first rate cut may be postponed, even until September.

　　Jon Meyer, chief investment officer of Global X, an American exchange-traded fund provider, said that the higher CPI increase was a reminder of the unpredictability of economic recovery and the ambiguity of macroeconomic data. Since the Fed may maintain or even strengthen the restrictive monetary policy due to these inflationary pressures, the market needs to be prepared for fluctuations.

　　Financial markets have recently risen due to the expected decline in borrowing costs. Some traders expect the Fed to cut interest rates as early as its meeting in March. The market still maintains the expectation that the Fed will cut interest rates in March after the latest CPI data is released. According to the "Fed Watch" tool of the Chicago Mercantile Exchange, the probability that traders expect the Fed to cut interest rates in March on the 12th is 79%, up from 73% on the 11th.

　　Some more radical market traders believe that the Fed may even cut interest rates six times this year. However, analysts believe that this situation can only happen when there is a recession in the United States.

　　Many analysts believe that the possibility of recession in the US economy has been reduced, but the growth rate is expected to slow down significantly in 2024, while still facing risks such as stubborn inflation and increasing geopolitical tensions.

　　JPMorgan Chase CEO Jamie Dimon said in the performance report released last week that the US economy is still full of resilience, but it is mainly due to the large-scale government deficit spending and the boost of previous stimulus measures. The need to continue to increase spending may lead to more viscous inflation and higher interest rates than market expectations.