Consumer price increases met expectations in November, but overall inflation remains high.
The sticky nature of the print “is a bit troubling,” Paul Ashworth, chief North America economist at Capital Economics, wrote on Wednesday. “But we don’t expect this to convince the Fed to skip another 25 basis point rate cut at next week’s FOMC meeting.”
Immediately after the report, markets continued to price in another 25 basis point cut at next week’s central bank meeting, with the probability of a cut rising to 98.1%, up from around 89% probability a day earlier.
“With markets coming into today’s numbers on fears of an upside surprise, the in-line figure is being received very positively,” wrote Seema Shah, chief strategist at Principal Asset Management. “But overall, the Fed will be concerned about the very stubborn nature of inflation and increasingly cautious about the upside inflation risks that President-elect Trump’s policies may pose.”
Trump’s proposed policies, such as high tariffs on imported goods, tax cuts for businesses and curbs on immigration, are seen by economists as potentially inflationary. These policies could further complicate the Fed’s stance on interest rates.
“We expect the Fed to exit autopilot in January, adopt a more cautious tone and slow the pace of cuts to just every other meeting,” Shah said.
Assuming a 25 basis point cut next week, markets are pricing in another two to three cuts in 2025, according to the latest Bloomberg data.
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