The Latest Inflation Data Puts The Us Economy Back In The 'goldilocks' Zone

Spencer Platt/Getty Images; Bryan Erickson/Business Insider

• After a run of hot inflation readings, the US economy appears to be back in the "Goldilocks" zone.
• That's good for markets and everyday Americans, as inflation stays cool and GDP continues to grow.
• A goldilocks economy also lowers the risk the Fed will be forced to resume rate hikes.

The latest inflation data has nudged the US economy back onto a path that points to cool inflation, steady growth, and stable interest rates, Wall Street strategists say.

December inflation data has put the economy in the "Goldilocks" zone, Bank of America said Thursday.

Headline inflation accelerated as expected in December, while core inflation, which strips out more volatile food and energy prices, rose 3.2% year over year, according to the Bureau of Labor Statistics, slightly under expectations for 3.3% core price growth. On a monthly basis, core CPI rose less than expected in December,

After a few months of hotter readings, the data hit a sweet spot that suggests inflation is cooling even as other areas of the economy like the job market—are staying strong.

Investors had lost some hop to lose hope for the elusive Goldilocks scenario late last year, when markets began to weigh the prospect of hotter inflation and higher interest rates in 2025.

Stocks sold off and bond yields spiked after the labor market added a blowout 256,000 jobs in December, fueling concern that the economy could be running too hot to justify further rate cuts.

Yet, the latest inflation report has made the outlook for interest rate cuts look more favorable in 2025, according to Bank of America. Though some investors were fretting over the possibility future rate hikes, that scenario looks less likely after the tame consumer and wholesale inflation reading.

"The benign CPI print implies a goldilocks economy, at least for now, of strong growth and moderation inflation," Yuri Seliger, a credit strategist at BofA, said in a note on Wednesday. "The second benign inflation print in a row reduces the risk of Fed hikes. That was the biggest risk weighing on investor demand recently," he added.

Mark Anderson, co-head of global asset allocation at UBS Global Wealth Management, also said he believes the risk of future rate hikes had been reduced after the latest inflation reading.

He anticipated the Fed cutting interest rates twice in 2025, in-line with what central bankers have projected.

"It's a great report for everybody. It's great for the equity investors out there," Anderson said, speaking to CNBC on Wednesday. "With that report today, with core inflation coming down to 0.2% month over month, this gets us into that fuzzy feeling, that goldilocks scenario where we can print nonfarm payroll reports with job gains above 200,000, and still have inflation coming in on a path that the Fed will bring in us closer to a neutral territory," he later added.

Investors cheered the latest data, with the Dow Jones Industrial Average jumping over 700 points Wednesday. Meanwhile, the yield on the 10-year US Treasury, meanwhile, slid 14 basis points, providing relief to equities as traders watched nervously in recent weeks as the yield approached the 5% level, which has triggered painful sell-offs in recent years.