November’s inflation report has revealed signs of cooling price pressures, raising questions about the Federal Reserve’s next steps. But as financial markets absorbed that news, speculation started building. Nobody was expecting a single month of below-consensus inflation prints to be enough to change the central bank’s policy course. But even with these more encouraging figures, experts warn that a big turn of the policy tide isn’t quite on the horizon.
For one, the report showed that core inflation came in at 2.6%, the lowest rate we’ve seen since early 2021. Needless to say, investors are in a good mood about the recent drop. They view the data as reassuring signals for both risk assets and fixed income securities. The long end of the yield curve joined in a surprisingly powerful rally, with 30-year bond yields falling to 4.797%. Economists warn against reading too much into this month’s numbers. They express concern that a possible technical adjustment might have artificially depressed the November inflation rate.
Analyzing the Impact of Softer Inflation Data
As welcoming as this report is, we should not expect the Federal Reserve to be too hasty about changing policy. The independent central bank’s policymakers have so far refused to cut rates, arguing that inflation will stay above their 2% target well into next year. For 2025, they have the PCE price index averaging 2.9%. In 2026, they expect it to decrease to 2.4%. Changes to core PCE forecasts recently show 3% in 2025 and 2.5% in 2026.
The contradictory signs shown by the November data might convince the Fed to stick with their adopted plan. Economic optimism from Raphael Bostic, one of the most influential members of the Federal Reserve, downplayed the need for additional rate decreases. He stated, “Moving monetary policy near or into accommodative territory, which further federal funds rate cuts will do, risks exacerbating already elevated inflation and untethering the inflation expectations of businesses and consumers.”
Financial analysts are already preparing for next December’s Consumer Price Index (CPI) report. This much-anticipated document is scheduled for release in mid-January. This report will provide a clearer understanding of underlying inflation dynamics and may help resolve ongoing debates about the current economic landscape.
Concerns Over Data Reliability
Part of the reason is because of unprecedented disruptions in data collection from a lengthy government shutdown that lasted until November 12th. This unexpected move has led to a lack of October data, removing key month-over-month comparisons. This compressed data collection timeline likely introduced systematic measurement biases. This in turn calls into question the integrity underlying the most recent inflation data.
The November report is the positive news story that economists want to believe in on face value. They caution that these complications may render it quite misleading. The absence of up-to-date, granular data could mislead policymakers’ judgments and further complicate their ability to make decisions as they interpret what is happening with the economy.
Future Projections and Rate Cuts
Market observers have their eyes glued on the economy. They think in case of a deterioration in labour market conditions, the Federal Reserve could surprise with 1 or even 2 rate cuts in Q1 2026. Policymakers expect inflation to converge around 2.1% in 2027 and 2% in 2028. This reflects their newfound hawkishness upon realizing the sticks of long-term inflation target.
While some investors are buoyed by November’s softer inflation data, it remains crucial for them to stay alert to upcoming economic indicators that could alter the Fed’s approach. The December CPI report will be a better guidepost to use in determining if inflation is trending up or down going forward.