US CPI comes in below forecasts, boosting hopes of faster Federal Reserve rate cuts

Consumer prices in the United States rose less than expected in November, adding to investor optimism that with inflationary pressures easing, the Federal Reserve might cut interest rates more aggressively than Wall Street has pencilled in.

The consumer price index increased at a 2.7% annual rate, according to a delayed report from the Bureau of Labor Statistics.

Economists surveyed by Dow Jones had forecast a rise of 3.1%.

Core CPI, which excludes volatile food and energy components, climbed 2.6% over 12 months, also below expectations of 3%.

The data marked a notable slowdown from September, when headline inflation ran at 3%, and came after weeks of uncertainty caused by a US government shutdown that disrupted data collection and forced the cancellation of October’s CPI release.

US equity futures rose sharply following the report as investors reassessed the outlook for monetary policy.

Futures tied to the S&P 500 advanced 0.7%, while Nasdaq 100 futures gained 1.3%. Dow Jones Industrial Average futures rose 188 points, or about 0.4%.

The reaction reflected growing confidence that inflation is cooling without a sharp deterioration in economic activity, a combination that markets view as supportive for risk assets.

US CPI: Energy remains a key driver

Energy prices continued to be a significant contributor to headline inflation, rising 4.2% over the year.

Fuel oil posted the fastest increase, up 11.2%, while gasoline prices rose just 0.9%, a relatively modest gain that may help temper consumer inflation expectations.

The divergence within energy components highlights why policymakers continue to focus on core inflation measures, which are viewed as a better gauge of underlying price pressures.

Federal Reserve policy in focus

Investors are now scrutinising the report for clues on the Fed’s next steps.

Earlier this month, the central bank cut its benchmark overnight rate by 25 basis points for the third consecutive meeting, signalling a cautious shift toward easing after an aggressive tightening cycle.

However, the decision exposed divisions within the Federal Open Market Committee.

Six officials indicated they would have preferred to hold rates steady, including Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid, who dissented.

Cleveland Fed President Beth Hammack has also warned that rates may need to remain “slightly more restrictive” to ensure inflation is fully contained.

Fed Chair Jerome Powell has said tariffs are likely to cause only a one-time increase in prices, with their peak impact expected in the first quarter of 2026, rather than triggering sustained inflation.

Politics and the labour market add pressure

The inflation report arrives at a sensitive political moment.

Polls show voters remain frustrated with high prices and are increasingly critical of President Donald Trump’s handling of the economy.

In a combative speech on Wednesday night, Trump insisted inflation was under control, wages were rising, and any economic turbulence stemmed from his predecessor.

Beyond inflation, the Fed is also grappling with signs of a cooling labour market.

The unemployment rate rose to 4.6% in November, up from 4.4% in September, heightening concerns that employment conditions could weaken further if policy remains too tight.

With inflation easing but job market risks mounting, the November CPI data is likely to intensify debate over how quickly and how far the Fed should cut rates in the months ahead.