US inflation came in well below expectations. What does this mean for the Fed?

Inflation in the U.S. in November was significantly lower than expected, Bloomberg writes . The consumer price index (CPI) amounted to 2.7% in annualized terms. Analysts and economists surveyed by Dow Jones expected it to accelerate to 3.1%. At the same time, core inflation rose at the slowest pace since the beginning of 2021, the agency said. It called the 2.6% figure "shockingly low."

- The Consumer Price Index (CPI), a general measure of the cost of goods and services in the U.S. economy, was 2.7% annualized in November. By comparison, in September it reached 3%, and the data for October were not published due to the government shutdown. The November result was below forecasts: analysts and economists surveyed by Dow Jones expected the index to accelerate to 3.1%.

- The core CPI, which excludes volatile food and energy, rose by 2.6%, while the most optimistic forecast - from Citigroup - suggested growth of 2.8%, Bloomberg points out. The agency called the slowdown in core inflation "striking", and the indicator itself - "shockingly low". In September, Core CPI amounted to 3%.

U.S. stocks sharply accelerated growth in preliminary trading after the release of statistics. Futures on the S&P 500 index rose by 0.8%, stock contracts on the Nasdaq Composite jumped by 1.4%.

Due to the shutdown, the U.S. government was unable to collect inflation data for October in time, so the publication of this report was canceled, writes CNBC. In this regard, the Bureau of Labor Statistics did not have a complete basis for calculating standard changes for November - usually they are specified relative to the previous month.

Nevertheless, the data released gave quantitative expression for the first time to the sentiment that many consumers talk about when describing rising prices, NBC points out. Americans have consistently cited inflation and increased everyday spending as the top economic concern.

"A more favorable year-over-year reading of the consumer price index will make it easier for the doves at the Fed to argue for additional rate cuts if December's data on the economy turns out to be weaker," Bloomberg Intelligence rate strategist Ira Jersey forecast.

"Moderate CPI data will reinforce the notion that the Fed is focused on protecting the labor market. That means the regulator is ready to support the economy if the situation worsens," Fundstrat's head of research Tom Lee wrote , as quoted by CNBC. - In other words, if the Fed sees downside risks to the economy, it could shift to a softer policy, which would be good for stocks."

B. Riley Wealth's Art Hogan warned that the numbers presented "are likely to raise questions because of the adjustments that had to be made due to the lack of October data." He also reminded that the November report includes the Black Friday effect, which appears to have stretched throughout the month. He called the publication "generally positive - but with caveats".

The presented report showed that inflation in the U.S. is still far from the Fed's target of 2% per annum. At the same time, despite the gap in the October data, the regulator cut the key rate by 0.25 percentage points on December 10 - to a range of 3.5-3.75%. This marked the third consecutive round of monetary policy easing. The reason was concerns about the labor market, which shows signs of weakening. At the same time, the forecast, reflecting the expectations of the members of the Federal Reserve Committee, showed that they expect only one reduction in 2026.

The probability that the rate will be cut again at the Fed's next meeting on January 28 was estimated before the release of the CPI index at 26.6%, the FedWatch trader sentiment monitoring tool shows. It was unchanged half an hour after the release, with traders beginning to plot a higher probability of a cut in March.

Ken Hague of Goldman Sachs Asset Management thinks the Fed will focus already on December CPI as a more reliable benchmark for gauging inflation, without distortions due to the shutdown. That report will be released in mid-January - just two weeks before the next meeting.

This article was AI-translated and verified by a human editor