Dovish remarks from Federal Reserve Governor Christopher Waller have sparked discussions about potential interest rate cuts in the first half of 2025, contingent on favorable inflation data. However, rising import prices, which increased by 0.1% in December and 2.2% y/y, pose a significant challenge to this outlook. These import price hikes, excluding petroleum products, rose 0.2% for the month and 2.4% y/y, signaling potential inflationary pressures that could lead the Fed to maintain or even raise interest rates, contrary to Waller's dovish stance.
The prospect of increased tariffs under the incoming administration of President-elect Donald Trump further complicates the inflation landscape, potentially exacerbating import price pressures. This scenario could lead to a stronger US dollar as higher interest rates attract foreign capital, impacting both equity and fixed-income markets negatively. As of 17:39 on January 16, the US Dollar Index (DXY) stands at 108.94, slightly down from its last close of 109.09, reflecting these complex market dynamics.