The degree, though, will depend heavily on whether inflation continues to recede. Economists surveyed by Bloomberg expect the consumer price index to show a 3.2% annual rise in December — up from 3.1% a month earlier. But the core measure, which is seen as a better gauge of underlying pressures since it excludes volatile food and energy prices, is expected to have slowed to 3.8% from 4%.
While that’s still above the Fed’s 2% target, the pace has come down significantly. Moreover, the central bank’s preferred gauge rose just 1.9% in November on a six-month annualized basis, the first time in more than three years the measure slipped below the Fed’s targeted level.
“As we go through the course of the year, the 10-year can get below 3.5% and that is dependent on inflation moving lower and growth becoming a little weaker,” said Gene Tannuzzo, global head of fixed income at Columbia Threadneedle Investments. “A trend of falling inflation and lower growth means the Fed has a framework to be easing and that is likely in the first half of this year.”
This article was provided by Bloomberg News.