All attention is focused on the release of the November Consumer Price Index (CPI) data on Tuesday at 08:30 a.m. ET. This significant economic indicator coincides with the start of the Federal Open Market Committee (FOMC) meeting, setting the stage for a potentially eventful December meeting.
Here is a preview of what economists are expecting for the November CPI:
According to the consensus among economists, the annual CPI inflation rate is projected to slightly decrease from 3.2% in October to 3.1% in November. If this data aligns with expectations, it would be the slowest annual rate of inflation since June and potentially the slowest pace since March 2021 if it falls to or below 3%.
The monthly CPI is anticipated to remain unchanged, similar to its performance in October.
Bank of America, which aligns with the consensus view, emphasizes that the main factor driving their expectation of a subdued headline figure is the significant decline in energy prices, particularly gasoline prices, during November. They believe this decline will counterbalance the steady rise in food prices and a 0.3% increase in core inflation.
When excluding the volatile energy and food components, the forecast for the core CPI annual rate is expected to remain steady at 4%. This would confirm the lowest core inflation rate since September 2021 but also break a streak of seven consecutive declines in the annual inflation rate.
Looking at it from a monthly perspective, core inflation is predicted to slightly increase from 0.2% in October to 0.3% in November.
Market reactions to the previous CPI release in October showed increases for the SPDR S&P 500 ETF Trust and the Invesco QQQ Trust, while the iShares 20+ Year Treasury Bond ETF experienced a decrease, and the Invesco DB USD Index Bullish Fund ETF tumbled.
In addition to the interest rate decision, the December FOMC meeting will provide updates on economic projections, including the Fed’s outlook for GDP growth, the unemployment rate, and inflation. The Fed’s previous projections in September indicated expectations for inflation and interest rates that differ from the current market sentiment, which anticipates rate cuts in 2024. Investors are pricing in multiple rate cuts by December 2024, while the Fed initially projected a decline in the Fed funds rate without additional cuts for the current year. These estimates are likely to be revised downwards, allowing room for potential rate cuts in 2024.