While the federal government shutdown prevented most of the October inflation survey, the full November survey showed slower price gains from a year ago. The 12-month trend rate for the overall CPI rose by 2.7 percent, helped by faster monthly gains from a year ago. The trend core rate (removing the volatile food and energy components) was up by 2.6 percent. Both of these measures were down from the September trend rates of around 3.0 percent.
If this is the start of a downward trend in inflation, it could mean that market estimates of Fed policy are underestimating the number of Fed easing moves that will occur in 2026. But one month's figures are not enough to determine a trend — we would need to see several months of slower inflation (and a continued downward trend) to convince the Fed to ease multiple times next year. If the good November CPI figures are a one-off, then the market's current estimates of Fed easing are probably reasonable. The December CPI will be available before the next FOMC meeting, and that will go a long way in determining whether or not the Fed eases at the end of January. Even with today's positive readings, markets still expect no change in policy at end of next month, but another positive CPI reading in January could reverse that.
Separately, weekly unemployment claims dropped to 224,000 — close to its recent average. This return to recent trend strongly suggests that the sharp drop during Thanksgiving week and the large jump in the following week were a product of the holiday-shortened week and the difficulty of correctly seasonally adjusting that data. Combined with the November nonfarm payroll data from earlier in the week, the narrative of the "no fire, no hire" job market remains intact.
David W. Berson, Ph.D., CBE
Chief Economist
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