In anticipation of tomorrow’s US inflation report, markets are tense. This is the last key data set before the Fed’s December 17-18 meeting . And the only one that could potentially shake up policymakers’ cards. A negative surprise could delay the rate cut currently expected with a probability of more than 85%.
US inflation expected to rise to 2.7%
Based on the consensus gathered by bloomberg, analysts expect inflation to accelerate in November ,with core inflation remaining stubbornly above 3%, far from the Fed’s 2% target.
In depth, the consumer price index is predicted to rise 2.7% year on year, up from 2.6% last October. The core CPI, calculated excluding food and energy prices, is expected to remain stable at 3.3%.
On a monthly basis, economists indicate a 0.3% increase for both headline inflation (+0.2% in October) and for the metric that excludes the most volatile components (in line with the previous month).
Core CPI expected steady at 3.3%
The core index is therefore likely to remain at 3.3% for the third consecutive month, after hitting a low of 3.2% in July. A slight slowdown in housing inflation should be offset by a modest recovery in other basic goods and services.
Analysts expect core PCE , the Fed’s preferred gauge of inflation, to accelerate to 2.9% year-on-year in November, up from 2.8% in October, data due out on December 20 (after the Fed meeting) .
Goldman’s Forecast for US Inflation to End 2025
Goldman Sachs estimates for hereafter’s report are astronomically in line with agreement. The American investment bank team expects the core index to increase by 0.28% on the month and to expand by 3.27% on the year.
Goldman expects to see three key trends in this report: a 2.0% increase in used car prices, a 1.0% increase in airfares, and a modest rebound in auto insurance (+0.5%).
In 2025, the brokerage expects further disinflation , thanks to the rebalancing of the auto, rental and labor markets, partially offset by an escalation in pricing policy. The estimates for December next year indicate a core CPI inflation of 2.7% and a core PCE of 2.4% on an annual basis.
Inflation May Change Fed’s Plans
Tomorrow’s data could be decisive for the Federal Reserve’s decision next week. The base case is a 25 basis point interest rate cut , which would bring the Fed funds rate into the range of 4.25-4.50%. However, as underlined by Mps Capital Services , “a sharp rise in inflation could prevent the Fed from cutting” .
The consumer price report comes just a few days after the US labor market report , which painted a mixed picture. On the one hand, payrolls increased slightly more than expected (227,000), on the other hand, the unemployment rate rose to 4.2% and wage growth remained at very high levels (+4% y/y).
“Bad news is good news,” but how long will it last?
According to Bloomberg Intelligence, the employment report was perhaps greeted too positively by the markets. New payrolls could be revised downwards. While the unemployment rate came very close to being rounded to 4.3% (4.246%), a level that perhaps could have scared investors more.
For now, it seems that the market does not doubt the solid foundations of the US economy. And has returned to react positively to “bad” news , as it supports expectations of rate cuts by the Fed.https://youtu.be/0bAQcGtyVnk?si=p9NWcfbpe6TRZZD8
In the coming months, however, the scenario could change. With a progressive deterioration of the labor market. And a simultaneous halt in the disinflationary process , sentiment could worsen, causing negative repercussions on the valuations of risky assets, including stocks.