Is the Federal Reserve's interest rate cut next week a foregone conclusion? The market holds its breath for tonight's CPI

According to the Zhitong Finance APP, the U.S. Bureau of Labor Statistics will release the U.S. Consumer Price Index (CPI) for November at 21:30 Beijing time on Wednesday. This report is expected to show that progress in reducing inflation has stalled, but it is not yet at the point where the Federal Reserve will not cut interest rates next week.

The market expects the U.S. CPI in November to rise 2.7% year-on-year, an increase from the previous month's 2.6%. The CPI is a broad measure of the cost of goods and services in the U.S. economy.

The market expects the core CPI, excluding food and energy, to rise 3.3% year-on-year and 0.3% month-on-month in November, both unchanged from October.

Given that the Federal Reserve has set its annual inflation target at 2%, this report will provide more evidence of the high cost of living faced by American households.

Dan North, a senior analyst at Allianz Trade Americas, stated: "From these indicators, there is no sign that the inflation dragon has been slain. Inflation persists, and there are no compelling signs that the inflation rate will converge towards 2%."

The U.S. Bureau of Labor Statistics will release the Producer Price Index (PPI) on Thursday, which measures wholesale prices and is expected to rise 0.2% month-on-month.

Progress in Reducing Inflation May Be Stalling

It is certain that the U.S. inflation rate has significantly decreased from its peak of 9% in June 2022. However, the cumulative effect of rising prices has burdened consumers, especially those with lower wage levels. The core CPI has been rising since July after experiencing a series of steady declines.

Nevertheless, futures market traders still believe that there is a high likelihood that policymakers will cut the benchmark interest rate by 25 basis points again at the conclusion of the Federal Open Market Committee (FOMC) meeting on December 18. According to the CME FedWatch tool, the probability of the Federal Reserve cutting rates next week is close to 88%.

North stated: "The Federal Reserve does not want to surprise the market. Therefore, unless inflation unexpectedly rises significantly, I am quite certain that a rate cut by the Federal Reserve is a foregone conclusion."

Goldman Sachs indicated that the rise in the CPI for November may come from several key areas.

Goldman Sachs economists predict that car prices are expected to rise 2% month-on-month, while airfares are expected to increase by 1%. Additionally, car insurance prices may continue to rise significantly, with Goldman estimating a 0.5% increase in November after a 14% rise over the past year.

Uncertainty Remains in the Outlook

While Goldman Sachs believes that inflation will further decline over the next year due to slowing inflation in the automotive and rental housing sectors and a softening labor market, the firm is also concerned that tariffs imposed by elected President Donald Trump could keep inflation high in 2025.

Goldman Sachs expects the core CPI to soften next year but only to 2.7%, while the Federal Reserve's target inflation measure—the core Personal Consumption Expenditures Price Index (PCE)—is expected to drop from a recent 2.8% to 2.4%.

With inflation rates expected to remain well above 2% and macroeconomic growth still close to 3%, the Federal Reserve typically will not cut rates. The Federal Reserve raises interest rates to curb demand, which theoretically forces businesses to lower prices The market expects the Federal Reserve to pause interest rate cuts at the January meeting next year, and then possibly cut rates again in March. From that point on, the market anticipates that the Federal Reserve will only cut rates once or at most twice for the remainder of 2025