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US inflation is expected to have fallen only slightly in November compared with a year earlier, bolstering the resolve of Federal Reserve officials to hold interest rates at current levels through the spring.
The consumer price index is expected to have edged down to 3.1 per cent last month, compared with 3.2 per cent in October, according to a Bloomberg survey of economists.
The core measure — which strips out changes in the price of energy and food, and is seen as a bellwether for longer-term inflation — is expected to have remained flat at 4 per cent.
The Bureau of Labor Statistics will publish the figures at 8.30am eastern time on Tuesday, just a day before Fed officials vote on interest rates.
Rate-setters prefer to watch a less volatile index — personal consumption expenditures — to measure inflation, and are seeking evidence that it is heading back to their 2 per cent target. They also want confirmation that inflation in the services sector, not including rent increases, is moderating.
But this month’s CPI reading will be published more than a fortnight ahead of the PCE data, and could influence how willing Fed chair Jay Powell is to push back on markets’ expectations of rate cuts as soon as March.
The Fed will also publish its latest summary of economic projections on Wednesday, which will be watched closely for signals on how many cuts officials foresee during 2024.
“While the market focus is increasingly turning towards activity data, inflation data will remain an important factor in determining the likely timing of the first Fed rate cuts,” said Veronica Clark, an economist at Citigroup. “We expect volatile, but overall still elevated, inflation data will keep rate cuts unlikely until activity data weaken more substantially.”
US jobs data published last week showed that the labour market remained robust in November, leading some investors to revise their expectations of a round of rate cuts beginning in March. However, most market participants continue to bet that the Fed will begin cutting borrowing costs from May.
The Federal Open Market Committee will almost certainly hold interest rates at their 5.25 per cent to 5.5 per cent target range at the December meeting.
Clark added: “Chair Powell will probably continue to guide that it is too soon to consider rate cuts but will not forcefully push back on market pricing or recently loosening financial conditions. Of course, a surprise in November data — we see risks balanced to the upside — could influence how hawkish or dovish Powell sounds.”
Additional reporting by Kate Duguid in New York
Source: Economy - ft.com
