After Labor Data, CPI Now in Focus

Rates fall in the aftermath of today’s labor data. December rate cut odds climbed after this morning’s labor data showed rising unemployment from October to November. Rates fell 8 bps at the front end of the curve in the immediate aftermath of the data and were little changed throughout the remainder of the session. Ultimately, rates closed 1-5 bps lower across the curve today and over the course of the week. Meanwhile, the NASDAQ reached a new all-time high today after a 0.81% rally.

Labor data helps case for a December cut. Nonfarm payrolls growth in November landed 7,000 above expectations, and the unemployment rate ticked slightly higher from 4.1% to 4.2% on the month. October’s figures were upwardly revised, but only slightly. The results landed within ranges that were expected to keep the door open for a 25bp rate cut in December and futures-implied odds of a cut climbed from 70% to ~85% after the release. Now, eyes are on next week’s CPI data for a look at the other side of the Fed’s mandate. Speaking after the release, Fed Governor Bowman and Fed President Hammack reiterated a desire to cut rates slowly and cautiously, towing the usual lines.

Core CPI growth is expected to remain flat from October to November. Core consumer inflation is expected to be +3.3% YoY and +0.3% MoM in November, the same as October’s levels. That would mark the third consecutive month of 3.3% YoY CPI after a drop to 3.2% in August and July, the lowest level since April 2021. Despite idle progress in the fight against inflation, a pause at this month’s FOMC meeting will remain unlikely, barring a significant upside CPI surprise. Core PPI will be released next week as well after coming in at 3.1% YoY in October.