US Inflation Cools Further, Offering Relief to the Fed

The latest US inflation figures released today offer some good news on the economic front. The Consumer Price Index (CPI) for November came in at 3.1%, down from 3.2% in October and meeting market expectations. While the monthly increase of 0.1% was slightly higher than anticipated, the core rate, excluding volatile food and energy prices, remained steady at 4%, indicating some stickiness in underlying inflation.

This further decline in headline inflation strengthens the Federal Reserve’s case for keeping interest rates on hold in the near term. The central bank is aiming to bring inflation back down to its 2% target, and the recent data suggests that their previous monetary policy tightening measures are starting to have a positive impact.

Market expectations are already shifting, with investors now anticipating a rate cut as early as March 2024. However, the Fed’s decision will ultimately depend on future inflation data, particularly the personal consumption expenditures (PCE) index, which the Fed prefers as its primary inflation gauge.

While the November CPI report is encouraging, the Fed is likely to remain cautious, closely monitoring any potential resurgence in inflationary pressures. The services sector, excluding rent, is still a major concern, and the Fed will need to see more sustained progress before it considers easing its monetary policy stance.

Overall, the recent inflation slowdown provides some breathing room for the Fed and could lead to a more dovish approach in 2024. However, the central bank is unlikely to completely abandon its inflation fight until it is fully confident that price pressures are under control.

Sources: TradingView, Financial Times, Reuters, Trading Economics.

Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst

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