After the release of U.S. Consumer Price Index (CPI) data in December 2024, inflation has once again become the focus of the market.Market participants have obvious differences in their expectations for the trend of inflation in the United States. On the one hand, some views believe that inflationary pressures may rise again; on the other hand, some views believe that inflation is already within the control range of the Federal Reserve.

From a data perspective, the U.S. CPI has rebounded for three consecutive months since bottoming out in September 2024. The year-on-year increase in CPI from September to December 2024 rose from 2.4% to 2.9%, showing signs of accelerating price increases.However, the trend of core CPI (excluding food and energy prices) shows a different trend.

From September to November 2024, the core CPI growth rate remained at 3.3% year-on-year, while unexpectedly falling to 3.2% in December. This change was interpreted by the market as a signal that inflationary pressures were easing.In addition, the personal consumption expenditure index (PCE), an inflation indicator that the Federal Reserve is more concerned about, has also gradually recovered since September 2024. The year-on-year increases in PCE from September to November were 2.10%, 2.31% and 2.44% respectively, while the core PCE was 2.66%, 2.79% and 2.82%, respectively.It is worth noting that PCE data for December 2024 will be released on January 25, 2025, and the market is generally optimistic about its expectations.

The market is optimistic about the upcoming PCE data.

Nick Timiraos, a columnist for the Wall Street Journal and known as the "mouthpiece of the Federal Reserve", predicts that based on CPI and producer price index (PPI) data, core PCE growth may reach 2.8% year-on-year in December 2024.Sam Tombs, an analyst at Pantheon Macroeconomics, said core PCE inflation may fall slightly in the next two months, which will support the Federal Open Market Committee (FOMC) to relax policy at its meeting in late March.

However, Yi Yi, chief economist of macro research at Huatai Securities (Huatai Securities is a leading comprehensive securities company in China and Yi Yi has a deep research background in the macroeconomic field), believes that the continuity of the inflation trend in December 2024 still needs further observation, and Trump's policy path may have a significant impact on the inflation outlook and the Federal Reserve's monetary policy.

Yi Yi pointed out that if Trump promotes the general imposition of tariffs on the world and China or the large-scale expulsion of illegal immigrants after taking office on January 20, 2025, it may lead to a rebound in inflationary pressures in the United States, thus restricting the Federal Reserve's interest rate cuts.Under such circumstances, the Federal Reserve's interest rate cut in 2025 may not be as good as the two interest rate cuts during the year as the dot chart currently points to, or may not even cut.On the contrary, if Trump's tariff and immigration policies are implemented less vigorously than expected, market concerns about U.S. inflation risks may be alleviated, and the Federal Reserve is expected to fulfill the rate cut currently pointed to by the dot chart.

From a broader context, there is uncertainty about the impact of Trump's policy path on the U.S. economy and inflation.According to relevant research, if Trump adopts extraordinary measures to impose tariffs or expel illegal immigrants on a large scale, it may have an impact on the United States and the global economy.In addition, the impact of Trump's policies on economic fundamentals may also be transmitted to the Federal Reserve's monetary policy decisions.For example, Trump did not substantially use political pressure to induce the Federal Reserve to cut interest rates during his first term, but the potential impact of his policies on the economy cannot be ignored.

In addition, there are also differences in market expectations on the path of the Federal Reserve's interest rate cut in 2025.According to Taylor's rule, a monetary policy model based on the inflation gap and the output gap, the Fed's room to cut interest rates will depend on the downward trend of inflation.However, due to the uncertainty of Trump's policy path, market expectations for the Fed's interest rate cut in 2025 are quite different.Some analysts predict that the Fed may still have room to cut interest rates by 125 basis points by the end of 2025, but federal funds futures traders are more cautious and only predict a 75 basis point rate cut by the end of next year.