Traders brace for key inflation data this week 

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US equity markets were muted Tuesday as traders await key inflation data. November’s consumer price index (CPI) report will drop tomorrow before the open, followed by the producer price index (PPI) report on Thursday morning.

A quick recap of expectations for tomorrow:

Analysts are anticipating November’s annual CPI figure to come in at 2.7%, a moderate uptick from October. Core CPI, which excludes volatile food and energy prices, is projected to show a 3.3% annual increase and a 0.3% month-over-month increase in November.

Housing costs will be in focus tomorrow after the shelter index in October increased by 0.4% from the prior month. Other indexes that saw monthly increases in October were used cars and trucks (+0.3%), medical care (+0.3%) and airline fares (+3.2%). The significant rise in airline fares specifically can be attributed to higher fuel prices and increased demand in the weeks leading up to holiday travel.

As we wrote about yesterday, the background for this week’s inflationary numbers is a (generally speaking) Goldilocks jobs report from last week. Goldilocks jobs report + as-expected CPI and PPI reports = rate cut. Right? Well, probably.

Let’s rewind to that “Goldilocks” jobs report from last week.

The economy added 227,000 jobs in November. That was more than the expected 202,000 and a big increase from the 36,000 positions added in October (upwardly revised from a previously reported 12,000). All in all good, right? Ah, but there were some pesky figures included in last week’s report, too.

Hourly wages are still on the rise. They were 4% higher annually in November, coming in just above expectations of 3.9%. Unemployment also increased, hitting 4.2% in November, up from 4.1% in October.

Plus, even as positions appear to be increasing, it’s getting harder to find a job. Latest initial jobless claims figures showed that continuing claims increased by 9,000 to 1.91 million for the week ended Nov. 16 — hitting the highest level since November 2021.

So, not the prettiest picture for the labor market.

Still, Fed funds futures markets appear pretty certain (86% sure, to be exact) that FOMC members will opt to cut interest rates by 25 basis points next week. This would be in line with what Fed officials told us earlier this year, and we know Chair Jerome Powell doesn’t like to surprise the market.

What’s going to be more of a wild card is what we see from the Fed in 2025. We’ve already seen officials start to prime markets for a slower-paced cutting cycle. Governor Michelle Bowman — who, you might remember, dissented on the FOMC’s decision to cut by 50bps in September — mirrored Powell’s language last week, saying the central bank needs to move “cautiously” going forward.

Plus, 2025 will bring a new (old) president with some familiar and some not-so-familiar economic policies. Buckle up.

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