U.S. CPI Misses Forecasts, Strengthening Case for Further Fed Rate Cuts

Cooling CPI Print Lifts Rate-Cut Expectations and Risk Appetite

U.S. inflation data delivered a clear downside surprise, giving traders fresh evidence that price pressures continue to ease and strengthening expectations for further Federal Reserve policy support. November consumer prices rose at a slower pace than forecast, reinforcing the view that the Fed’s recent rate cuts are gaining traction across the economy.

Headline and Core Inflation Undershoot Forecasts

The Consumer Price Index increased 2.7% year over year in November, below the 3.1% consensus estimate. Core CPI, excluding food and energy, rose 2.6% from a year earlier, also undershooting expectations for a 3.0% gain. On a two-month, seasonally adjusted basis covering September through November, both headline and core prices advanced 0.2%. The report follows a disruption in October data collection due to a federal government shutdown, making this release especially important for policy and positioning.

Energy and Shelter Remain Key Contributors

Energy prices remain a notable upside factor, with the energy index up 4.2% year over year. Electricity prices climbed 6.9%, while natural gas surged 9.1%, highlighting ongoing cost pressure for households and utilities. Shelter inflation eased but stayed firm at 3.0% annually, confirming that housing costs are slowing gradually rather than collapsing. These components continue to shape inflation persistence even as broader price growth cools.

Services Inflation Moderates as Goods Stay Contained

Services excluding energy rose 3.0% over the past year, signaling moderation compared with earlier readings. Medical care services increased 3.3%, while transportation services advanced 1.7%. Goods inflation remained contained, with commodities excluding food and energy up just 1.4% year over year. Used cars and trucks rose 3.6%, but apparel prices increased only 0.2%, underscoring limited pricing power outside select categories.

Federal Reserve Signal Turns More Supportive

The softer CPI print follows the Fed’s third consecutive 25-basis-point rate cut earlier this month. Market participants increasingly view the central bank as prioritizing labor market stability as inflation trends lower. Equity investors interpreted the data as reinforcing a policy backstop, while bond markets leaned toward expectations that easing may extend further than previously priced.

Market Forecast: Short-Term Bullish Bias

The November CPI report supports a short-term bullish bias for risk assets. Cooling headline and core inflation strengthen the case for continued Federal Reserve easing, improving sentiment across equities and credit while keeping pressure on yields. Unless upcoming data reverse this trend, markets are likely to favor growth exposure and rate-sensitive sectors in the near term.