The unexpected decline in core inflation is an encouraging sign, suggesting inflationary pressures could be diminishing faster than anticipated, bolstering a more accommodative monetary policy outlook.
Despite headline inflation surpassing the Fed's target of 2%, the moderation in the core measure offers a glimmer of hope, leading markets to expect rate cuts in 2025.
Markets interpret the December inflation data optimistically, with the S&P 500 rising 1.6% thanks to strong corporate earnings from financial giants exceeding expectations.
The drop in core inflation, coupled with a moderate PPI, suggests potential easing of inflationary pressures, influencing investor sentiment and future Federal Reserve decisions.
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