Consumer inflation posted another slowdown in the US during December, as energy prices cool off, which has improved consumer sentiment.  The decline in the headline CPI inflation from 7.3 to 6.5% YoY came right on point with estimates which are not enough for a 50 bps hike in the next FED meeting and the implied odds of such a hike have declined dramatically now.

That sent the USD lower and economists expect prices to slow further this year, which would weigh on the USD. WisdomTree drew a graphic emphasizing that US inflation numbers for the next several months will be compared to some seriously high numbers from a year ago, which will cause inflation readings to fall.

This week’s CPI report came at -0.1% for December, so the trend is heading down. CPI MoM has to be at 0.2% until June for the FED to reach its 2.0% annualized target. The decline in gas prices has helped the situation, but gas and other commodity prices have stopped declining.

Prices for core services numbers are also not falling and will likely not fall, because that’s usually the case with services. On the other hand, there’s some positive news regarding goods prices in the months to come. Tesla cut its prices to take them right back to pre-pandemic levels today, so that’s essentially zero inflation for three years. Many economists think other automakers will need to do the same, or at least ramp up incentives that lower the true cost of the car.

So, as inflation slows toward normal levels, the FED will stop hiking interest rates soon and probably reverse later in 2023. The FED fund futures show interest rates at 4.44% at the end of this year. That’s way below the 5.00-5.25% that the FED forecasts on the dot plot show. This will weigh on the Usd, so we might be entering a bearish year for the Buck.