U.S. consumer prices increased by the most in seven months in November, but that is unlikely to discourage the Federal Reserve from cutting interest rates for a third time next week against the backdrop of a cooling labor market.
The consumer price index rose 0.3% last month, the largest gain since April after advancing 0.2% for four straight months, the Labor Department said on Wednesday. In the 12 months through November, the CPI climbed 2.7% after increasing 2.6% in October.
Economists polled by Reuters had forecast the CPI rising 0.3% and advancing 2.7% year-on-year.
"Today’s inflation report likely confirms a Fed policy cut next week but, with monthly core inflation hitting its strongest rate since the inflation scare of early 2024, price pressures are hardly settling at a level that the Fed can be completely at ease with. As markets came into today’s figure with fears of an upside surprise, the in-line number is being received very positively. And, certainly, there is some good news here – owner equivalent rent has fallen to the slowest pace since January 2021. 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. We expect the Fed to move off autopilot in January, adopting a more cautious tone, and slowing its pace of cuts to just every other meeting."
"CPI number came in as expected. So, nobody is surprised and that always helps the market. A little better would have been better. We don't seem to be getting any closer to 2%, which is what the Fed is trying to get to, and it looks like it's going to take a long time to get to that number."
"It is pretty sure that they'll lower the rate by 25 basis points next week and then take a month or two off, possibly, and then do a couple more."
“You don't get any more bang in line with this report. Everything was right in line with expectations. The equity market seems to be breathing a sigh of relief that this is another steady-as-she-goes report. There's no surprises. It seems the equity market was braced for a higher-than-expected number. But since that didn't come in, you're seeing some relief. There's no reaction from the bond market on the long end even though there’s a bit of reaction on the short end.”
“I don't think it broke a lot of new ground, it was largely as expected. I don't think it will change the Fed's thinking, so I expect them still to cut rates next week.”
“There is some good news in the details. We're seeing shelter inflation continue to decelerate. That's the largest single category in the core CPI basket. That's the most important category and the one that has been slowest to come down, so it's good news to see that continuing to slow. But there's still some room to go.”
“Services inflation and even shelter inflation are still running higher than the Fed would like. And as a result of that, I expect them to signal next week some caution and cut rates, but to indicate that they're not locked into cutting rates every meeting, that they're going to have to continue to watch the data and that they will eventually need to see additional downward momentum in inflation.”
"The previous target was 2%, but Jay Powell made it pretty clear that he's comfortable with things closer to 3%. So obviously if his goal was really to get down to 2%, he wouldn't be cutting based on 2.7%."
“The CPI is in line with expectations. What surprises me is that this is the second month in a row that the CPI has ticked up. The job growth was slightly above average, and the Atlanta Fed says the economy is tracking above 3% growth this quarter, and yet the market is as confident as possible, practically, that the Fed is still going to cut rates next week.”
“Very rarely does the Federal Reserve go against the market when such strong odds are priced in.”
"It came in as expected. That's the best thing you could say about it. It didn't come in hotter than expected and the market likes it because of that."
"I wish it were lower but it isn't. The reality of the situation is that the pace of inflation has moderated but it hasn't declined. That's disconcerting. It seems to be very sticky. It's great that prices aren't going up as much as they were but they're not coming down. Everybody would love to see the price of eggs lower but they're not."
"That's going to eventually play into rate decisions. I don't think it has much of an impact on next week. This Fed has decided they're going to cut by 25 basis points next week. That's what the market has decided and if it doesn't cut next week, that would be a disappointment. "They're going to be on hold for a couple of meetings into 2025. We'll see where it goes after that."
WHITNEY WATSON, GLOBAL CO-HEAD AND CO-CIO, FIXED INCOME & LIQUIDITY SOLUTIONS, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK (by email)
“In-line core inflation clears the way for a rate cut at next week’s FOMC meeting. 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.”
"There's nothing to see here, move along folks. Everything came in line with expectations. Shelter costs are still the main driver of inflation. With the payrolls report behind us and now the inflation report behind us, there’s nothing stopping the Fed from cutting 25 bps next week. The excitement will all be in the summary of economic projections. It will likely show four cuts in 2025 and inflation eventually simmering down to target."
“The CPI print confirms the market consensus of another 25bps rate cut from the Federal Reserve. We are still closely monitoring the strength of the labor market and potential stickiness of certain components of inflation (shelter, services) heading into 2025.”
“The report was in line with expectations. It does show that the inflation fight has hit a speed bump, but I don't think that these numbers derail the Fed from cutting next week by 25 basis points next week.”
“Inflation remains sticky, so it’s not all that positive, but not all that negative. I would say this is a neutral report and the markets are likely to act accordingly.”
“Looking forward, I think after this, the Fed may pause (its rate cuts) in the first quarter of 2025 based on two things, sticky inflation and the prospects of Mr. Trump's economic program regarding the tariffs.”
