US Rates: Takeaways from December inflation and Red Sea trade disruptions

• Core PCE rose 0.3% on the month and 3.9% over a year ago, showing signs of stickiness since last year.
• The yield curve has steepened and two-year yields have fallen dramatically, indicating market response to the softer implications for core PCE.
• Differences in calculation methods and components of CPI and PCE contribute to the wedge between the two measures, with shelter inflation and medical insurance costs being key factors. Non-market prices, particularly in services, are running below market prices for core PCE.

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