U.S. Core CPI Falls Below Forecast, Signals Easing Inflationary Pressures: Sector Rotation Opportunities in Banks and Air Freight Amid Monetary Policy Shifts

The U.S. Core CPI for November 2025, released on December 18, 2025, came in at 2.6% annually (not seasonally adjusted), below the 3.0% forecast. This marks a significant moderation in inflation, offering a glimmer of hope for a Fed pivot toward easing. While the data gap caused by the 43-day government shutdown complicates month-over-month analysis, the annual figure suggests a potential shift in the inflation trajectory. For investors, this opens a critical window to reassess sector allocations, particularly in banks and air freight, which historically exhibit distinct responses to monetary policy shifts.

The Fed's Dilemma: Inflation Moderation vs. Labor Market Weakness

The Fed's 2% inflation target remains elusive, but the November CPI reading—though still above the threshold—signals a deceleration in price pressures. Chair Jerome Powell has emphasized the need for “more data” before committing to rate cuts, a stance that reflects the central bank's balancing act between inflation control and supporting a labor market showing signs of strain. With unemployment ticking upward and wage growth slowing, the Fed's January 2026 meeting could become a pivotal moment.

Historically, banks and air freight have shown divergent reactions to Fed easing cycles. During the 2001 dot-com bust and 2008 financial crisis, banks initially struggled with credit losses but eventually benefited from accommodative rates. Conversely, air freight's performance has been more volatile, influenced by trade policies, fuel costs, and global demand shifts.

Banks: Navigating Net Interest Margins and Credit Demand

The banking sector's risk-return profile is inextricably linked to interest rate differentials. Lower rates typically compress net interest margins (NIMs), but they also stimulate lending activity. During the 2019 “mid-cycle adjustment,” banks saw improved loan demand as rates fell, though the benefit was muted by low inflation. Today, with inflation easing but still above target, the Fed's eventual rate cuts could provide a dual tailwind: lower borrowing costs for consumers and businesses, and a potential rebound in credit quality as economic uncertainty recedes.

Investors should monitor regional banks more closely than megabanks. Smaller institutions often benefit disproportionately from rate cuts due to their focus on small business and consumer lending. However, the risk of a prolonged easing delay remains, as the Fed may prioritize inflation control over growth support.

Air Freight: Trade Policy and Fuel Costs as Key Drivers

The air freight sector's performance during Fed easing cycles is less directly tied to monetary policy and more influenced by external factors. For example, the 2025 reintroduction of de minimis cargo charges on e-commerce parcels and U.S. tariff fluctuations created significant volatility, even as fuel prices dropped. Lower jet fuel costs (U.S. Gulf Coast prices averaged $2.12/gallon in 2025, down 36¢ from 2024) provided a tailwind, but trade uncertainty offset gains.

Historically, air freight has outperformed during periods of strong global trade growth, such as the 2000s and 2010s, but underperformed during trade wars or economic contractions. With the Fed's easing likely to support broader economic activity, air freight could benefit from improved trade volumes—provided U.S. tariff policies stabilize. Investors should also consider ETFs like the iShares Transportation Average ETF (IYT) to capture sector rotation opportunities.

Strategic Allocation: Leveraging Historical Backtests

Backtesting reveals that banks and air freight have exhibited distinct patterns during Fed easing cycles:
- Banks: Outperformed in 2001 and 2019 but underperformed in 2008–2009 due to credit risks.
- Air Freight: Correlated more with global trade cycles than Fed policy, with peak performance in 2004–2006 and 2014–2016.

Given the current environment, a tactical overweight in banks and a cautious exposure to air freight could be justified. Banks offer defensive potential as rate cuts materialize, while air freight's upside depends on trade normalization.

Conclusion: Positioning for a Fed Pivot

The November CPI data, while not a green light for immediate rate cuts, signals a potential shift in the Fed's stance. Investors should prepare for a January 2026 meeting that could mark the start of a easing cycle. For banks, this means positioning for NIM expansion and credit demand growth. For air freight, the focus should be on trade policy developments and fuel cost trends.

In a world where monetary policy remains the dominant force, sector rotation is not just a strategy—it's a necessity. As the Fed inches closer to easing, the time to act is now.