US CPI the final hurdle before December FOMC decision
The latest US CPI data will be released on December 11, 2024 and could determine what the US Federal Reserve does with interest rates when it meets a week later.
US inflation data expected to show sticky price pressures
The U.S. Consumer Price Index (CPI) for November 2024 is expected to show a 2.7% year-over-year increase, with core CPI forecast to rise 3.3%. Key drivers of core inflation remain services-related costs, particularly housing, medical care, and transportation services. Persistent "super core" inflation, focusing on services excluding housing, is a critical concern for the Federal Reserve due to its link to wage growth. Sticky inflation in sectors like healthcare, insurance, and education continues to pressure overall inflation, complicating the Fed's path toward its 2% target. The behaviour of inflation recently has led to expectations of a shallower cutting cycle and higher trough rate from the US Federal Reserve, especially given the inflationary pressures that are expected to build from looser fiscal settings and tariffs in 2025.
(Source: Trading Economics)
November Non-Farms data increases odds of another Fed cut
Last week’s November U.S. non-farm payrolls report delivered a robust 227,000 jobs added, beating market expectations of 200,000 and recovering sharply from October's weather and strike-affected gains of just 36,000. The unemployment rate ticked up slightly to 4.2%, driven by a decline in the labor force participation rate—a signal that some workers may be exiting the labor market. Wage growth remained firm, with average hourly earnings up 0.4% month-over-month and 4% year-over-year, keeping inflation concerns alive. The data strengthens the case for a Federal Reserve rate cut in December but adds uncertainty about the future path of interest rates in 2025.
US CPI data the final test before expected FOMC rate cut
As of December 10, futures markets imply an 85% probability of a 25 basis point cut from the Fed at its final meeting for 2024. If the inflation data comes in roughly as expected, the odds are likely to increase further and move towards full pricing in a cut. The markets are likely to be hypersensitive to an upside surprise in the inflation figures, with an unexpected increase in core inflation likely leading to doubt about whether the Fed will cut this month and to what extent it will be able to cut further in 2025. Currently, the markets imply another two cuts in 2025, with the markets estimate of a neutral policy rate climbing into the high 3% range.
(Source: Bloomberg)
S&P 500 pulls back but remains in primary uptrend
The S&P 500 has pulled back from record highs heading into the US CPI data. From a technical standpoint, the market had flirted with technically overbought territory and had challenged an upward sloping resistance level. The market remains in a primary uptrend and bull market. Short-term technical support may be found around its previous “higher-high” at approximately 6000, a critical psychological level, as well as the 20-day moving average.
(Source: Trading View)
(Past performance is not a reliable indicator of future results)