US Inflation Shows Signs of Stalling, Raising Concerns for Fed

US inflation likely saw another month of firm price increases in November, suggesting that progress toward the Federal Reserve's target is slowing, reports Bloomberg. Economists polled by Bloomberg project a 0.3% rise in the core consumer price index (CPI), excluding food and energy, for the fourth consecutive month. A similar increase is anticipated for the overall CPI.

The upcoming CPI report, scheduled for release Wednesday by the Bureau of Labor Statistics, and a subsequent producer price index report on Thursday, will provide the Federal Reserve with its final inflation data before its December policy meeting. While markets are still largely anticipating a third consecutive interest rate cut, a series of strong inflation readings could prompt the Fed to slow down the pace of reductions.

"If the inflation data come in largely in line, we expect the Fed to follow through with another cut next week," stated Deutsche Bank AG economists led by Brett Ryan. "However, we expect the messaging coming out of the meeting to heavily emphasize a more gradual pace of easing going forward."

The Fed aims to bring inflation back to its 2% target. While inflation has retreated from post-pandemic peaks, it has plateaued in recent months. The central bank closely monitors both the CPI and its preferred inflation gauge, the personal consumption expenditures price index (PCE).

Bloomberg Economics anticipates faster price gains in core goods, particularly used cars, citing unfavorable seasonal factors and higher used-car and apparel costs. Housing and car insurance are also expected to keep inflation elevated.

"The final leg of inflation’s journey back to the Fed’s target is looking tougher and tougher," noted Wells Fargo & Co economists Sarah House and Aubrey Woessner. They expect the return to the Fed's 2% goal "to drag on through our 2026 forecast horizon, with negligible inroads made in the year ahead."

The incoming Trump administration's policies, including potential tax cuts and tariffs, are also seen as potential inflationary headwinds, despite improved consumer sentiment following the election.

"From a fundamental standpoint, we do not see material upside risk to inflation: The labor market has rebalanced, supply constraints have largely subsided, and inflation expectations remain anchored," wrote Bank of America Corp. economists Stephen Juneau and Jeseo Park. "That said, progress on inflation should stall next year given our expected changes to tariffs, fiscal and immigration policies."