Federal Reserve officials are hesitant to signal the start of interest rate cuts in the wake of December's Consumer Price Index (CPI) print. Cleveland Fed President Loretta Mester believes March is too soon to initiate cuts after seeing inflation rise annually and month-over-month for December.

Yahoo Finance Live examines where the latest core inflation reading and how the Fed is interpreting this data.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

JOSH LIPTON: Federal Reserve Bank of Cleveland President Loretta Mester said today's hotter than expected December CPI report is the latest indicator that more work is needed before the Fed can look to lowering rates in an interview with Bloomberg, adding that March is likely too early for the Fed to start cutting rates. So let's dig into that December CPI print here, Julie. So here's the details, the numbers you need to know.

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Rose 0.3%, that was a tad disappointing relative to consensus. Accelerate to 3.4% from a year ago. Now, core CPI, so excluding those volatile food and energy prices, that did cool to 3.9% from a year ago though the market was hoping for a sharper cooling to about 3.8%. If you look under the hood of that report, it looks like the pickup in shelter costs, higher vehicle prices, and more expensive travel, that economists saying is what kept core inflation from even cooling more.

JULIE HYMAN: Yeah, looking through some of the commentary that we got today in reaction to this, my sort of takeaway from that commentary was this is that, yes, this CPI showed this little re-acceleration. But that PCE data, which is another measure of inflation that the Fed watches more closely, will be maybe a little bit softer. All of that said, they say the Fed is not likely to change its trajectory here and is not likely to declare victory over inflation, which kind of speaks to those Mester comments, right, when she was saying that it was premature to cut interest rates in March here.

And so that seems to be kind of the consensus. And I guess because that is the view broadly, stocks didn't do a lot. In other words, today's data did not change the narrative around what the Fed is going to--

JOSH LIPTON: It does change their outlook for sure in the near term. I mean, the bottom line-- listen, the Fed wants inflation back to 2%, Jay Powell has made that very clear. They want it back to 2%. They want it to stay at 2%

And what he's been talking about and other central bankers have been talking about is this idea that, yes, clearly, we've made progress. We're working in the right direction. We have certainly cooled considerably since 2022. But we have more work to done before we get back to that bogey.

Yeah.