The recent report released by the United States Bureau of Labor Statistics has revealed compelling insights into the month of November, where the Consumer Price Index (CPI) experienced a year-on-year increase of 2.7%. This rise marks a 0.1 percentage point increase compared to the previous month, reflecting a consecutive expansion for two monthsWhen the more volatile sectors such as food and energy are excluded, the core CPI similarly rose by 3.3%, maintaining this level for the past four months, a situation warranting keen attention from economists and policymakers alike.

On a month-on-month basis, the CPI rose by 0.3%, which is also a 0.1 percentage point increase from OctoberThe core CPI displayed the same 0.3% rise, a consistent figure over four monthsThe data aligns closely with market predictions, showcasing a nuanced outlook on inflation trends as they unfold.

As of the time this data was released, the trading platform for futures, namely the Chicago Mercantile Exchange's "FedWatch" tool, indicated that there was a striking 98.1% probability of a 25-basis point rate cut this month, an increase of 9.2 percentage points from the previous day

The Federal Reserve's monetary policy committee is set to convene for its meeting on December 17th and 18th, where crucial decisions regarding interest rates will be made.

In detail, the report highlighted a notable contributor to the CPI increase: the housing index rose by 0.3%, accounting for nearly 40% of the month’s CPI uptickThe food index saw a rise of 0.4%, with household food prices climbing by 0.5% and restaurant prices increasing by 0.3%. Despite a stagnation observed in October, the energy index made a slight recovery with a rise of 0.2% in November.

Brian Coulton, Chief Economist at Fitch Ratings, provided an insightful commentary on the CPI data, indicating that the downturn in core commodity prices seems to have come to an endHe mentioned a deceleration in service sector inflation, yet remarked that the decline is progressing at a notably slow pace, particularly due to stubborn rent inflation which lingers, with service inflation currently at 4.6%, still significantly above pre-pandemic levels.

Economists analyzing these patterns suggest that despite a rebound in inflation, the Federal Reserve is likely to cut rates once more in December to prevent the labor market from cooling too quickly

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However, the frequency of rate cuts may diminish as we move into the next couple of years.

Last week, the Department of Labor released its non-farm payroll figures, revealing an impressive addition of 227,000 jobs in November, a significant rebound from the previous monthHowever, the unemployment rate also edged up to 4.2%, marking a 0.1 percentage point increase—the first rise in three months—indicating a complex interplay within the labor market.

Dan North, Senior Economist at Allianz Trade America, mentioned prior to the release that persistent inflation trends were expected, yet market expectations were steady regarding rate cutsHe suggested that the Fed is unlikely to create unexpected shifts, voicing his confidence that unless unforeseen surges occur, the Fed would adhere to its planned trajectory.

Fitch recently revised its inflation expectations for the U.S., forecasting that inflation could reach 2.8% by the end of 2025, marking an increase of 0.4 percentage points from previously estimated figures in September

The expectation is that the Federal Reserve will gradually decrease rates to neutral levels, accumulating a total cut of 125 basis points from now until the end of 2025, with no further cuts anticipated in 2026.

In a report, Coulton stated, "We now expect the Fed to conclude the current easing cycle sooner, projecting a benchmark rate of 3.5% in 2026 which is 50 basis points higher than our assessed neutral rate." This sets a new trajectory for monetary policy that will have implications across economic sectors.

Earlier, Federal Reserve Governor Christopher Waller indicated that barring any unexpected data, he tends to support further rate cuts in DecemberHis comments reinforced the sentiment within the Fed towards cautious optimism, acknowledging the strong economy that has outperformed predictions made back in SeptemberThis resilience has allowed the Fed to explore the concept of a "neutral" interest rate policy more thoroughly.

Powell, in his final public address before the Fed entered its silent period, articulated a cautious approach to interest rate cuts