U.S. Inflation Cools to 2.9% in November, Fueling Hopes for a Fed Rate Cut
The U.S. Consumer Price Index (CPI) for November rose 2.9% year-over-year, below expectations. This fuels speculation about a Federal Reserve interest rate cut in 2026.
Could your mortgage payments finally be heading down? The U.S. Consumer Price Index (CPI) for November came in softer than expected at 2.9% year-over-year, a clear sign that inflation is continuing its retreat. The data significantly boosts expectations that the Federal Reserve could begin cutting interest rates in 2026.
A Faster Cooldown: The Numbers Breakdown
According to the Bureau of Labor Statistics, the NovemberCPI was flat month-over-month (0.0%) and up 2.9% from a year ago. Both figures were below economists' expectations of 0.1% and 3.0%, respectively. Core CPI, which excludes volatile food and energy prices, also cooled, rising 0.2% monthly and 3.8% annually, against forecasts of 0.3% and 3.9%. A significant 2.5% drop in gasoline prices was a major contributor to the disinflationary trend.
Market Cheers and the Fed's Next Move
This CPI report is the last major inflation reading before the final Federal Open Market Committee (FOMC) meeting of 2025, making its impact particularly significant. In the immediate aftermath of the release, the S&P 500 rose and Treasury yields fell. The market is now pricing in a higher probability of the Fed beginning its rate-cutting cycle in early 2026. However, some caution remains as sticky components like shelter costs continue to rise, suggesting the Fed won't rush into a policy pivot.
It's too early to declare victory based on a single data point. Investors should remain cautious as market volatility could increase. It's crucial to watch subsequent data, including the Fed's preferred PCE inflation gauge and labor market reports, before drawing firm conclusions.
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