Christmas came early for investors

It may have taken years of central banking policy, many speeches from our bespeckled Fed chair, and countless inflammatory Truth Social posts—but it looks like inflation has finally begun waving the white flag.

• The delayed consumer price index reading for November showed that prices jumped 2.7% annually. That figure was below forecasts of 3.1%, and a deceleration from the 3% annual rate in September.
• Core inflation, which excludes food and energy costs, came in at 2.6%, which was also cooler than expected and the lowest core inflation reading since early 2021.

Stocks jumped on the news, leading the Nasdaq and S&P 500 to have their best CPI day since January.

“Today’s CPI shows disinflation not just holding, but gathering rhythm—a reminder that prices can still move in the right direction, even when the details get noisy,” explained Gargi Pal Chaudhuri, Chief Investment and Portfolio Strategist at BlackRock.

What this means for the Fed

As we all learned in Econ 101, when the labor market and consumer sentiment are both flagging, a lower inflation reading ups the chance the Fed will cut rates to give the economy a shot in the arm. If inflation is consistently decelerating, it’s a sign restrictive monetary policy is no longer needed.

“Of course, it’s only one month’s data points and they will likely fluctuate in the upcoming months, but the main concern of Fed officials who are reluctant to keep cutting is that inflation is persistently high and won’t come down if they keep lowering interest rates, and at this point that doesn’t look like it’s the case,” explained Chief Investment Officer for Northlight Asset Management Chris Zaccarelli.

Not so fast…

However, despite the early Christmas gift, many analysts are warning investors not to get too excited. After all, there were huge gaps in data collection during the government shutdown, and the absence of an October CPI report makes it harder to track the trend. That’s why some analysts say it’s too soon to get a clear signal from the noise in terms of the Fed’s next move.

Investors seem to agree: The chances of a rate cut in January barely budged from where they stood yesterday, and right now the market still thinks there’s a good chance that cuts take a breather next month.

There’s another wrinkle, too. President Trump has been hounding the Fed to cut rates for months now, to the point that the White House has taken to painting a rosier picture of inflation than what the numbers reveal. While today’s reading did show cooling prices, be wary of a top-down narrative that paints an unrealistically bright picture as the administration pursues its economic agenda.

But still, delayed good news is better than none at all.—LB