US Inflation Data Fuels Speculation of Fed Rate Cut Amid Persistent Economic Pressures

The latest consumer price index (CPI) report released on Wednesday indicates that inflation in the United States for November aligns with economists' expectations. This data reinforces the likelihood of the Federal Reserve reducing the interest rate by 25 basis points in its meeting next month. November's CPI came in at an annual rate of 2.7%, up from October's 2.6%, marking the second consecutive month of rising inflation to a four-month high. Month-over-month figures show a 0.3% increase, consistent with forecasts.

The core CPI, excluding food and energy, held steady on a yearly basis at 3.3% for the third month in a row, and also recorded a monthly increase of 0.3%. The resilience in housing-related costs, which rose 0.3%, signals ongoing inflationary pressures within the broader economy, tempered by a slower pace in owner's equivalent rent.

Market reactions to the CPI publication have been swift, with traders increasing their bets on a December rate cut. Notably, swap traders have priced in the possibility of rate cuts accumulating to 87 basis points by the end of 2025, suggesting a less aggressive path than previously projected. The anticipation of this rate cut has led to immediate fluctuations in the currency and commodities markets, including a brief rise in the gold price.

Despite reductions from last year's peaks, inflation remains above the Fed's 2% target. Some policymakers have expressed concern over the persistent nature of inflation and suggested that further action might be needed if progress stalls. The combination of inflation pressures and broader economic indicators will be key considerations as the Fed approaches its December meeting.

Looking towards 2025, the pace of monetary easing may slow as rate levels approach a more neutral stance, balancing curbing inflation with sustaining labor market health. There is a collective expectation from analysts that while further loosening of monetary policy will follow, the trajectory may not be as steep as previously expected, reflecting the complex dynamics at play in the economy.