U.S. inflation reached 2.7% in November, matching Wall Street’s forecasts, which now predict a rate cut from the Federal Reserve by mid-month.
The data, released Wednesday by the U.S. Bureau of Labor Statistics, slightly surpassed October’s 2.6%, which had itself marked an increase from the previous month.
Market expectations now point to a 98% probability of a quarter-point rate cut at the Fed’s next meeting on December 18, pushing the target range to 4.25%–4.5%.
Markets reacted positively, with the S&P 500 climbing 0.7% and the Nasdaq gaining a more significant 1.3%. In the bond market, the yield on the 2-year Treasury note fell to 4.12%.
Wednesday’s data showed that both headline inflation and core inflation, which excludes food and energy prices, rose by 0.3% from the previous month. On an annual basis, core inflation increased to 3.3%. The primary driver of the rise was a 0.3% increase in housing costs, as reflected in the shelter index, although other housing-related data suggests costs may be falling, as the shelter index tends to lag by approximately nine months.
Excluding housing, food, and energy, service-sector inflation rose more moderately by 0.19%, compared to 0.3% in October. The Fed has already begun discussing the possibility of slowing the pace of rate cuts as interest rates approach a more “neutral” level, one that can manage inflation without further harming the economy or the labor market.
Caution remains high within the Fed, with officials concerned that overly rapid rate cuts could push inflation back up, while delaying action too long might lead to a sharp increase in unemployment. Last week, Fed Chair Jerome Powell expressed confidence that the economy was showing positive signs, allowing the central bank to take a “more cautious” approach to rate decisions.
