We expect Core CPI inflation to have rebounded sharply to 0.45% m-o-m in December after having softened in the prior months due to two reasons. First being carry forward imputation applied to October CPI data likely led to positive payback in certain components (almost 40% of core CPI basket) through bi-monthly pricing practices. Second being delayed data collection in November seems to have brought forward seasonal price declines from December. This should lead to a rebound in month-on-month core CPI in December as seasonal adjustment factors catch up. We also expect core PCE inflation for December also accelerated to 0.38% m-o-m from 0.1-0.2% in the prior months. The recent volatility caused by the government shutdown makes it difficult to gauge the underlying inflation trend. Moreover, positive residual seasonality will likely push up inflation data early this year. Thus, unless labor markets deteriorate sharply, uncertainty around the inflation outlook will likely keep policymakers vigilant on inflation risks. We continue to believe the Fed will likely keep policy rates on hold until a new Fed chair is sworn in. We continue to expect two more rate cuts of 25 bps each in CY26, one in the 17th June FOMC meeting & the last cut in the 16th Sep FOMC meeting. We expect long end UST yields to eventually move northwards to our target of 4.3%. On 9th Nov, we had released the following trade recommendation on selling 10yr USTs: https://macro-spectrum.com/trade-recommendation/sell-10yr-ust
