The U.S. Bureau of Labor Statistics on Thursday released the Consumer Price Index (CPI) data for December 2023 showing that U.S. inflation rose to 3.4% in the month.

U.S. Core CPI Advances, Inflation Misses Market Estimates

The all-items index rose 3.4% for the 12 months ending December, a larger increase than the 3.1% increase for the 12 months ending November. For December, inflation advanced 0.3%, being largely in tandem with market expectations.

U.S. CPI data also showed that core inflation eased to 3.9% over the last 12 months, after rising 4.0% in November.

Market on average was expecting core CPI to remain unchanged at 0.3% from the month before, while year-on-year inflation was expected to slow to 3.8% from November’s 4%, a Reuters poll showed.

Financial sectors across the globe, including the crypto markets had a volatile session this week amid the much-anticipated Bitcoin ETF approval. However, today’s CPI data will provide important cues to understand the Federal Reserve’s upcoming interest rate decision.

Since the beginning of the year, investors have been placing bets on how quickly and steeply the Fed and other institutions will cut interest rates. Fed futures pricing shows that traders are expecting an easing of 140 basis points (bps) this year, as opposed to the 160 bps reduction that was anticipated by the end of 2023.

Still, it is higher compared to the Fed’s projection of 75 bps of cuts in the year. According to the CME FedWatch tool, markets are pricing in a 69% chance of a rate cut as soon as in March.

Market Range Bound After CPI Number

The upcoming Fed’s decision on keeping rates steady or cutting them as early as March will be highly influenced by todays data.

In the interim, the US Dollar Index was largely range bound, trading 0.1% up at the time of writing. Crypto markets, however, were trading slightly up due yesterday’s landmark decision by the SEC to approve spot Bitcoin ETFs. At the time of writing Bitcoin is trading over $48,034, up 6% in last 24 hours.

Meanwhile, Federal Reserve Bank of New York President John Williams said on Wednesday it was too soon to call for rate cuts as the central bank still had some distance to go on getting inflation back to its 2% target, according to a report by Reuters.

Today’s hotter-than-expected U.S. CPI might give Fed more reasons to keep rates steady instead of cutting in the future.

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