US to release final inflation data for next week's policy meeting: Fed could 'turn around'

The forecasted US Consumer Price Index (CPI) for November shows that inflation remains relatively stable. The inflation rate has decreased significantly after reaching its peak in the summer of 2022 but has slowed down in recent months as it approaches the Federal Reserve’s 2% target. In general, economists predict that the CPI in November will increase by 0.2% compared to the previous month and a slight increase of 2.7% compared to the same period last year. Meanwhile, the core CPI (excluding volatile food and energy prices) is expected to rise by 0.28% in November and increase by 3.3% compared to the same period last year. High-level economist Josh Hirt at Vanguard said that the inflation rate is still within the range of 2.5% - 3.0%. Inflation is slowing partly due to persistent pressures in the service and housing sectors. Mr. Hirt expects core CPI to increase by 0.25% in November. Analysts at Goldman Sachs predict that used cars, airfares, clothing, and auto insurance price increases will put pressure on inflation in November. They also noted that food and energy prices are rising. Goldman Sachs’ core CPI forecast is 0.28%.

Economists at Wells Fargo said that despite some progress in recent months, the path to the Fed’s 2% inflation target seems “increasingly difficult” as we move into 2025. They point to new obstacles that have emerged in the form of import tariffs and the potential for domestic tax cuts. The CPI data for November, which will be released on December 11, will be the final important economic data that the Fed receives before its policy meeting on December 18. This is also the last meeting of Fed officials in 2024. Analysts said an unexpected rise in inflation could prompt the central bank to pause its rate-cutting cycle this month. But investors say the inflation data isn’t that high. According to CME’s FedWatch Tool, as of earlier this week, markets anticipated about a 90% chance that the central bank would cut rates by 0.25%. The cut would lower the federal funds rate to a range of 4.25% to 4.50%. Bank of America’s economists believe that the November CPI data will have a much larger impact on stocks than investors think. “We believe that the remaining two major pieces of information in the year (CPI and FOMC) can guide the market in the short term. Decreasing inflation may pave the way for a year-end stock price increase. Conversely, rising inflation may cause volatility,” strategists said.