A report on consumer prices is expected to show that inflation has stalled, but not enough to stop the Federal Reserve from lowering interest rates next week. The consumer price index is projected to show a 2.7% 12-month inflation rate, a 0.1 percentage point increase from the previous month. Core inflation is forecast at 3.3%, unchanged from October. Both measures are expected to show a 0.3% monthly increase.
The report will provide more evidence that the high cost of living remains a fact of life for U.S. households, with some economists saying that “inflation is still here, and it doesn’t show any convincing moves towards 2%.” Despite inflation moving down from its peak around 9% in June 2022, the cumulative impact of price increases has been a burden to consumers, particularly those at the lower end of the wage scale.
Traders in futures markets are placing huge odds that the Federal Reserve will cut its benchmark short-term borrowing rate by a quarter of a percentage point when the Federal Open Market Committee meets in December. Odds of a cut were near 88% on Tuesday morning, according to the CME Group’s FedWatch measure.
Some economists believe that the Fed will not make a bold move, such as cutting interest rates, without a significant change in the economic environment. “When the market is locked in like where it is today, the Fed doesn’t want to make a big surprise,” said Dan North, senior economist at Allianz Trade Americas. “So unless something has skyrocketed that we haven’t foreseen, I’m pretty sure the Fed is on a lock here.”
The report is expected to show that prices increased in areas such as car prices, air fares, and auto insurance, which are likely to continue to rise. While some economists expect further disinflation in the pipeline, others worry that President-elect Donald Trump’s planned tariffs could keep inflation elevated in 2025.
Overall, the report is expected to show that inflation remains above the Fed’s 2% target, and some economists do not see a need for the Fed to cut interest rates. “Two percent to me doesn’t mean just touching 2% and bouncing along. It means hitting 2% for a continuous, foreseeable future, and none of that is evident in any of those reports,” said North. “You don’t really want to cut in that environment.”