The November Consumer Price Index report is expected to show continued moderation of inflation pressures, leaving the door open for the Federal Reserve to cut interest rates in 2024.
“Generally speaking, inflationary pressures are softening significantly,” says José Torres, senior economist at Interactive Brokers.
Job market data released Friday showed that hiring remained robust in November even as prices have come down—a sign that the Fed’s aggressive policy-tightening campaign is having its intended effect without damaging economic growth.
According to FactSet, the overall CPI is forecast to come in at a 3.1% annual rate in November, down from 3.2% in October. On a monthly basis, analysts are expecting no change from October’s reading. This would be the second report in a row that showed no change in the inflation rate month over month. Torres characterizes this as progress: “The Fed’s inflation goal is 2% ... not deflation.” He explains that prices falling is what would trigger a recession.
Meanwhile, core CPI is expected to remain steady at 4% on an annual basis. On a monthly basis, economists expect a reading of 0.3%, compared with 0.2% in October. Core inflation excludes volatile food and energy prices, and has been much slower to fall than headline inflation. Such a change is a significant deceleration compared with earlier this year, according to Andrew Patterson, senior international economist in Vanguard’s Investment Strategy Group. But he says, “The Fed still has more work to do.”
November CPI Forecast Highlights
- The CPI is forecast to be unchanged in November from October, after an unchanged reading in October, according to FactSet.
- Core CPI is forecast to rise 0.3% in November after increasing 0.2% in October.
- The CPI year over year is forecast to rise 3.1% in November after rising 3.2% in October.
- Core CPI year over year is forecast to rise 4% in November after rising the same amount in October.
Torres expects that price declines in automobiles, electricity and heating costs, and gasoline will bring down the headline number in November.
Keep an Eye On Sticky Services Inflation
Patterson will be looking for signs that services and healthcare inflation are continuing on a downward path. “We want to see those continue to fall,” he says.
Torres points to shelter prices continuing to slow as evidence that future deceleration is likely in services inflation. He also expects softer numbers in the transportation and restaurant categories.
Will the Fed Cut Rates Soon?
In financial markets, investors have quickly pivoted from speculation about when the Fed’s rate hikes will end to wondering when the first rate cut will come. All that depends on the path of the economy.
“Right now, we are crossing the monetary policy bridge,” Torres says—the time between when interest rates peak and when the Fed starts cutting. “The hope is that there aren’t any job losses along the way.” Strong jobs data released Friday seemed to reinforce that hope for now.
Fed officials have repeatedly emphasized that they remain “data dependent,” meaning they will cater their policy decisions to economic conditions rather than follow a predetermined path for rates. That means any unwelcome surprises in Tuesday’s report (like evidence of reacceleration in services, food, or energy prices) could prompt the central bank to change course and keep rates higher for longer than investors expect.
The Fed “would stand ready to hike rates in 2024 if we were to see a reacceleration in inflation,” Patterson says. However, he cautions that Fed officials take more than a single inflation reading into account for such decisions. “They’re looking for trends, not one month of data.”
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