Consumer Inflation Expectations Decrease to 3%

Consumer expectations for inflation dropped to their lowest point in the past three years.

Highlights

• · In December, consumer inflation expectations dropped to 3% from 3.4% in November.
• · Over the long term, inflation expectations have also decreased.
• · The substantial decrease in inflation expectations indicates the Fed's effectiveness in combating inflation.  

On January 8, 2024, traders were provided with insights into Consumer Inflation Expectations for December.

The report revealed a decrease in Consumer Inflation Expectations from 3.4% in November to 3% in December, which was lower than the analysts' projected 3.3%. Consequently, Consumer Inflation Expectations reached their lowest point since January 2021.

Of particular note, median inflation expectations decreased across all timeframes. Expectations for inflation three years ahead dropped from 3.0% to 2.6%, while the five-year-ahead expectations declined from 2.7% to 2.5%.

The decline in Consumer Inflation Expectations demonstrates the effectiveness of the Fed's policy, potentially paving the way for a reduction in the federal funds rate in March.

Following the release of the Consumer Inflation Expectations report, the U.S. Dollar Index tested session lows. Treasury yields are trending downward, exerting bearish pressure on the American currency.

In reaction to the report, gold prices are attempting to recover above the $2035 level. A weaker dollar and decreasing Treasury yields have offered some support to gold prices, although a widespread sell-off in commodity markets has acted as a major bearish driver for gold.

The S&P 500 settled near the 4720 level, buoyed by the Consumer Inflation Expectations data. Traders are banking on a dovish Fed, considering the central bank's apparent success in combating inflation.