Don’t get excited about Fed ‘dovishness’ – another rate hike is in the cards.

December's Federal Open Market Committee (FOMC) meeting was a boon for markets. Risky assets – including cryptocurrencies – have increased as the central bank takes a more hawkish stance on monetary policy. But the markets could be in for a surprise as the Federal Reserve looms large on rate hikes in 2024, which could force policymakers to step up again to meet the 2% inflation target.

At the moment, the biggest expectation is that the Fed has won its fight against inflation. However, economic analysis shows that this is not the case. Indeed, the recent slowdown in price growth is likely to be temporary – inflation is likely to pick up again next month to end the year at 3.5% and stay well into 2024. Prices should be controlled while maintaining maximum employment.

So far it has definitely succeeded with the latter. Unemployment remains at historic lows, down from 3.9% in October to 3.7% in November. The economy added 199,000 jobs that month, beating analysts' estimates. Wage growth continued to outpace inflation for the fifth month in a row in October, rising again to 5.7% after a brief hiatus.

This, naturally, gives consumers more confidence to spend. Contrary to what Fed Chairman Jerome Powell said in his last press conference, people have now “bought too much … they have no place to put it.” In short, the economic slowdown needed to bring inflation down to the target is nowhere to be seen.

A tight labor market is a problem because it is driving inflation in services, which account for 42 percent of the overall U.S. CPI index. At a time when commodity prices are falling, service prices are rising because wages are rising. Don't expect this to go away anytime soon. Inflation may stick around for longer than either the market or the Fed anticipates.

Related: Sky-high interest rates are exactly what the crypto market needs.

On top of this, we see a number of structural economic changes that justify inflation, which policymakers may ignore. First, we are moving away from globalization and toward protectionism. As manufacturing moves back home, mentions of offshore, onshore, and off-shore during earnings calls by U.S. companies have increased an average of 216 percent since the start of 2022. However, the “Made in the USA” label comes with a higher price tag than its Chinese-made counterparts. The offshore trend is supported by government spending on infrastructure, green energy, technological innovation and the semiconductor supply chain.

It doesn't help that the cost of capital has risen sharply due to rising interest rates. And, if the Fed keeps rates low for longer, that translates into a slowdown in innovation, as Silicon Valley startups struggle to raise money. This means that the productivity gains that everyone expects to see from artificial intelligence (AI) will not come as quickly as planned. While there is no doubt that they are coming, this will take at least three to four years to implement, so industries are scrambling to fill the gap in the short term.

Then there's the demographic shift. Over the past 50 years, we've seen a decline in middle-income households in the US – from 61 percent to 50 percent. While this increased the share of low-income households from 25 percent to 29 percent, the share of high-income households rose from 14 percent to 21 percent. These high earners have contributed greatly to the spending growth we see today, especially in the housing market, where demand has remained remarkably strong despite high interest rates.

Related: Over 35K Bitcoin for Christmas? Thanks to Jerome Powell if it happens

The Bureau of Labor Statistics (BLS) reported another monthly increase in prices in the shelter category, marking an impressive 43-month streak of growth. Real-time US CPI data contradicts this, showing a 0.68% drop in November, but the survey shows that demand is strong and supply is tight. This will no doubt perpetuate the housing affordability crisis and contribute to stuck inflation as we head into 2024. In fact, we've seen prices in this category start to rise again in the last couple of weeks.

While oil prices fell in November – making the transport sector the biggest contributor to inflation – there is no reason to believe this will last. The ongoing conflict in Gaza and planned OPEC+ production cuts have already started to increase prices at the pump.

All of these drivers conspire to cause inflation to rebound in December, giving policymakers an early January headache that has nothing to do with post-Christmas hangovers. The FOMC may have taken an ambiguous stance this week, but Powell has consistently reiterated his commitment to 2% inflation. In the year In 2024, he could argue for another rate hike to keep his promise. So hold your horses, markets – it's too early to run that victory lap.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.omy.