Consumer Inflation Remains Well Above the Fed’s 2% Goal

Rate curve steepens following CPI data. The short end of the rate curve plummeted 7 bps in the immediate aftermath of this morning’s inflation print, where CPI matched forecasts across all readings. The initial decline reflected increased confidence that the Fed will opt for a 25 bp rate cut in December. However, rates reversed course throughout the remainder of the session, with the short end closing 1 bp higher and the long end up 4-6 bps. The NASDAQ soared 1.77% today on the same sentiment and crossed over 20,000 for the first time.

December rate cut is certain per the market, but road ahead remains unclear. November CPI data was in line with estimates across all measures, climbing slightly on a headline basis while remaining unchanged across core readings vs. October. Of the various categories measured, shelter inflation cooled, but still drove 40% of the overall advance. The results were largely viewed as supportive of a Fed cut in December, and futures implied odds of a 25bp cut in December climbed to ~99% vs. ~89% yesterday. Looking beyond December, however, the results paint a picture of stubbornly elevated inflation and raise questions about the Fed’s appetite for rate cuts at subsequent meetings.

Bank of Canada cuts rates again, signals slowed pace going into 2025. The Bank of Canada cut policy rates by 50 bps for the second consecutive meeting today, the first central bank to do so since 2009, excluding the COVID pandemic. However, Bank of Canada Governor Tiff Macklem stated that “with the policy rate now substantially lower, we anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected.” Lagging economic growth and uncertainty from potential Trump tariffs contributed to today’s larger move; Canada’s economy grew by 1% in Q3, below the bank’s October projection, while Q4 growth also looks weaker than expected.