The recently released November Consumer Price Index (CPI) shows that the annual inflation rate rose to 2.7% in November. A steadily rising inflation rate meets expectations by the Dow Jones and keeps the Federal Reserve on track to lower interest rates again in December. As traders raise the odds for a pending rate cut, consumers feel the pinch of rising food and shelter costs.
The Bureau of Labor Statistics Findings
The CPI report released by the Bureau of Labor Statistics reveals that consumer prices rose at a faster annual pace in November than the previous month. The CPI for November increased by 0.3%, putting it at 0.1 percentage points higher than October and making a 12-month inflation rate of 2.7%.
The index for food pricing rose to 0.4% in November, following 0.2% in October. Four of the six major grocery store food group indexes increased in November, with meats, poultry, fish, and eggs rising to 1.7%. Eggs saw one of the sharpest inclines, reaching 8.2%.
The shelter index increased to 0.3% in November, with the index for owners’ equivalent rent rising to 0.2% over the month. Energy costs similarly increased to 0.2% after remaining unchanged throughout October. The gasoline index increased by 0.6% after seasonal adjustments.
Following CPI Report, Markets Expect Additional Fed Rate Cut
As reported by CNBC, all the numbers included in the CPI report for November fell in line with Dow Jones consensus estimates. In response, markets strongly expect the Federal Reserve to lower its short-term borrowing rate by an additional quarter percentage point when the next policy meeting concludes on December 18th.
Although inflation has dropped well below the 40-year high seen in 2022, it remains above the Fed’s 2% annual target. While this has sparked frustration by both consumers and policymakers, bets for rate cuts remain steady. As the CPI report solidifies market outlooks for a cut, traders have raised the odds to 99%. Additionally, the odds for a January reduction have increased to 23%.
Whitney Watson, the global co-head and co-CIO for fixed income at Goldman Sachs Asset Management, has made comments regarding the report. “In-line core inflation clears the way for a rate cut at next week’s meeting,” Watson states. “Following today’s data, the Fed will depart for the holiday break still confident in the disinflation process, and we think it remains on course for further gradual easing in the new year.”
Mixed Expectations in the Face of Administration Changes
According to Yahoo! Finance, U.S. election results and a pending administration change have further complicated the market outlook for 2025. Some economists are arguing that inflation could resurge to previous numbers should Trump execute his campaign promises.
Some of President-Elect Trump’s proposed policies include high tariffs on imported goods, tax cuts for corporations, and reduced immigration. These policies could potentially complicate the Federal Reserve’s designs for future interest rate cuts. However, cautious optimism prevails for today’s market outlook.
Seema Shah, chief global strategist at Principal Asset Management, wrote, “As markets came into today’s figure with fears of an upside surprise, the in-line number is being received very positively.” Shah further commented on the uncertain nature of this positivity, stating, “But overall, the Fed will be concerned by the very stubborn nature of inflation and will be increasingly cautious about the upside inflation risks that President-elect Trump’s policies may bring.”
In the face of steadily rising interest rates and predicted market outcomes, experts remain confident of an additional Federal Reserve rate cut, with additional possible cuts down the line. While markets express modest optimism, the future of the U.S. economy remains murky as experts brace for administration changes and policies.
