Inflation was on the rise again in November – but the Fed is still expected to slash rates next week
Inflation rose slightly in the US last month, although the increase was in line with expectations and keeps a Federal Reserve rate cut next week firmly on the table.
The Bureau of Labor Statistics said Wednesday that the overall consumer price index (CPI) rose at a clip of 2.7% in November compared with the same time in 2023, while core CPI – which does not include the cost of food and energy – was up 3.3% year over year.
Both inflation measures increased 0.3% over the prior month, but stocks jumped and Treasury yields fell in a sign that markets remain confident another rate cut is on the way when the Fed meets on December 17-18.
Unsurprisingly, shelter costs remain one of the highest overall contributors to inflation, accounting for almost 40% of price growth despite slowing between October and November.
CPI for all items rises 0.3% in November; shelter and food up https://t.co/dJyJeKmvth #CPI #BLSdata
— BLS-Labor Statistics (@BLS_gov) December 11, 2024
But First American senior economist Sam Williamson noted that the cooldown – which saw shelter inflation slide to 0.2% last month, compared with monthly averages of around 0.4% during the past year – marked the lowest level of shelter inflation since January 2021.
While a flurry of big rate cuts is unlikely in 2025, he said they would still likely be significant enough to lead mortgage rates steadily downwards in the coming 12 months.
“This much-needed progress is likely welcome news for the Fed, which has faced setbacks in its inflation-fighting efforts recently,” Williamson wrote. “Assuming a more gradual pace of rate cuts in 2025, mortgage rates are generally expected to follow a similar path, likely settling in the mid-to-low 6% range by year-end.”
American Staffing Association chief economist Noah Yosif told Bloomberg that cutting rates would “allow the Fed to be nimble enough to tackle potential disinflationary headwinds in the new year, including continued stickiness within shelter costs, as well as policy shifts on tariffs, taxes, as well as immigration.”
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