Although geopolitical events and challenges to Fed independence made headlines this week, financial markets looked beyond these developments and focused on inflation and the consumer. The Consumer Price Index (CPI) rose in December 0.3% month-over-month and 2.7% year-over-year. The core CPI, excluding food and energy, rose less than expected at 0.2% month-over-month, and 2.6% year-over-year. Shelter costs, which have been declining throughout most of 2025 had a slight bounce-back in December, advancing 0.4% in the month, the most since August. Excluding the shelter component, the core CPI only climbed 0.1%, and several categories showed price declines, including appliances and used cars and trucks.
While the CPI data was slightly below consensus expectations, the November Producer Price Index (PPI) data came in modestly higher than forecasts, primarily driven by higher energy costs. while the price of services was unchanged. U.S. wholesale price inflation as measured by the PPI for final demand were up 0.2% in November after climbing 0.1% in October and rose 3.0% year-over-year. Excluding food and energy, the PPI was unchanged from October. Of note, the PPI numbers released on Wednesday were originally scheduled to be released on December 11th, but the report was delayed by the 43-day government shutdown. The Bureau of Labor Statistics will report December’s PPI on January 30th.
Consumer spending and housing also took center stage this week. US Retail Sales rose in November by the most since July driven by a pick-up in auto sales and higher than expected holiday shopping. Retail Sales increased 0.6% in November after a downwardly revised 0.1% drop in October. Ten of the thirteen categories posted increases, including motor vehicles, and building materials. Control-group sales, which feed into gross domestic product, advanced 0.4% in November after a gain of 0.6% the prior month. The measure excludes food services, auto dealers, building materials stores and gasoline stations.
Overall, housing data released this week was encouraging. Although new single family home sales eased 0.1% in October, it followed an extraordinarily strong 3.8% increase in the prior month. Existing home sales climbed in December to the fastest pace since 2023. Contract closings rose 5.1% to a 4.35 million annualized pace. The numbers for previously owned homes exceeded all forecasts in a Bloomberg survey of economists.
The U.S. treasury curve flattened slightly with the 2-year trading at 3.57%, the 5-year at 3.78%, and the 10-year at 4.18% as of this morning. The Chandler Team expects the Fed to hold rates steady at their meeting later this month after three straight cuts to close out 2025. Looking forward, we believe the Fed will limit further accommodation to one more 25-basis point reduction in the first half of 2026.
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