November CPI Numbers: What to Expect?

Key points:

• The US Federal Reserve will release its November CPI data at 8:00AM ET today.
• Even if the CPI data is higher than expected, the Fed will likely maintain the 50 basis point rate hike. 
• The central bank is widely expected to raise interest rates by half a percentage point on Wednesday afternoon.
• Economists believe the Fed will keep raising rates until the federal funds rate is near 5% or higher. 
• As Powell recently talked about, the market will focus on services-induced inflation and ignore real estate.
• The US Federal Reserve will release its November CPI (Consumer Price Index) data at 8:00AM ET today. Consumer inflation may have cooled in November, according to experts. Nevertheless, prices continued to rise at a high rate.

According to the Dow Jones Industrial Average, consumer prices rose at an annual rate of 7.3% in November, down from 7.7% in October. The core CPI is expected to rise by 0.3% or 6.1% year-on-year. According to Dow Jones data, the core CPI rose 0.3% in October and the annual rate was 6.3%.

The Federal Reserve will release inflation data for November today before its two-day meeting. Even if the CPI data is higher than expected, the Fed will likely maintain the 50 basis point rate hike. The central bank is widely expected to raise interest rates by half a percentage point on Wednesday afternoon. Fed Chairman Jerome Powell will hold his regular post-meeting news conference at 2:30 p.m. ET. EST on Wednesday.

Mark Cabana, head of U.S. rates strategy at Bank of America Merrill Lynch, explained:

“I think if the market sees something in line, all is good. If the theme holds, rates [bond yields] probably still decline a bit. But if we see something that surprises to the upside, I think that would generate a more sizeable market response because it would be questioning the theme the market has really latched on to — which is that inflation has peaked.”

Rate hikes even with low inflation

Economists believe the Fed will keep raising rates until the federal funds rate is near 5% or higher. Currently, the target range for federal funds is between 3.75% and 4%. While neither hotter nor cooler CPI data is likely to affect the Fed's decision on this meeting, economists believe it could provide some insight into where long-term interest rates are headed.

As Powell recently talked about, the market will focus on services-induced inflation and ignore real estate.

Aneta Markowska, the chief financial economist at Jefferies, said:

“Powell pretty much told us last week that we know core goods will continue to slow. We know housing will eventually slow as the decline in market rents eventually comes through. The one piece we don’t have confidence in slowing is core services ex-housing.”

Diane Swonk, the chief economist at KPMG, thinks the inflation data will be cooler. The data is unlikely to be reflected in the Fed's quarterly guidance, which Swonk said is expected Wednesday afternoon. However, hotter or weaker data could affect subsequent Fed communications. Swonk forecast data may remain unpredictable and the direction of inflation is uncertain.