Inflation at 2.7% Annual Rate, Core CPI 3.3%—Fed Weighs Future Rate Cuts

Notable price declines included the communication index (-1.0%), indicating deflation in select sectors. Overall, November marked the first time in five months that inflation accelerated, signaling persistent pricing challenges.

What Does This Mean for Federal Reserve Policy?

The Federal Reserve’s decision-making is under scrutiny as inflation remains above its 2% target. Markets largely expect the central bank to reduce its benchmark interest rate by 0.25% at the December 18 meeting. However, some Fed officials have expressed concerns about the resilience of inflation and suggested a cautious approach to future rate cuts. Should the Fed proceed, it will have trimmed rates by a full percentage point since September.

Despite rate cuts, inflation’s stickiness in categories like shelter (+4.7% annually) and motor vehicle insurance (+12.7% annually) could limit the central bank’s flexibility in easing monetary policy further in early 2025.

What Lies Ahead for Markets?

The inflation report underscores the likelihood of a mixed market outlook. The anticipated rate cut may offer relief for equity and bond markets, but persistent inflation in core categories could temper optimism. With shelter and food prices still rising, consumer spending power may face constraints. Energy prices, which have moderated on an annual basis, could provide some respite if current stabilization trends continue.

Market Forecast: Inflation’s trajectory suggests a cautiously bearish short-term outlook for bonds and a mixed-to-bullish scenario for equities, contingent on the Federal Reserve’s actions next week. Traders should monitor Fed commentary closely for signals of policy shifts into 2025.