‘No data’ in CPI report flashes yellow to announce further interest rate cuts

‘No data’ in CPI report flashes yellow to announce further interest rate cuts
‘No data’ in CPI report flashes yellow to announce further interest rate cuts

The first new inflation reading since the government shutdown showed prices unexpectedly fell in November, although the report may not immediately change the Federal Reserve’s outlook due to possible distortions in the data.

“This seems like positive news overall, but the lack of detail and lack of data collection during the lockdown introduces a degree of skepticism that is hard to ignore,” said Olu Sonola, head of U.S. economic research at Fitch Ratings. “We will have to wait until next month to get a clearer reading on inflation.”

The consumer price index rose 2.7% in November, compared to Wall Street expectations of 3.1%. On a “core” basis, which excludes volatile food and energy prices, inflation clocked in at 2.6%, compared with estimates of 3%. Core inflation had been stuck around 3% for months, causing many at the Federal Reserve to worry that inflation had plateaued.

Read more: How Employment, Inflation, and the Federal Reserve Are Related

This month’s CPI does not include month-over-month figures because the government was shut down for a month and a half, halting much of the price data collection by the Bureau of Labor Statistics. However, during the two-month period since September, the BLS said that both the headline and core CPI had increased just 0.2%.

Federal Reserve Chair Jerome Powell warned last week that the central bank would take a “skeptical look” at November data because of the impact of the shutdown. In fact, there were significant gaps in the data, as the information was not collected for a month and a half.

Federal Reserve Chairman Jerome Powell speaks at the Federal Reserve on Wednesday, December 10, 2025, in Washington. (AP Photo/Jacquelyn Martin)
Federal Reserve Chairman Jerome Powell speaks at the Federal Reserve on Wednesday, December 10, 2025, in Washington. (AP Photo/Jacquelyn Martin) · ASSOCIATED PRESS

Still, many economists believe the latest inflation reading shows progress toward the central bank’s 2% inflation goal.

“The Fed said it was in ‘wait and see’ mode, and today it could see inflation moving in the right direction. Inflation may still be above target, but today’s data extended the possibility of additional rate cuts a little further,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management.

A drop in rents lowered the overall inflation figure, even as basic goods rose 1.4% due to tariffs. Utilities inflation, excluding energy prices, rose 3%, still high but below the 3.5% since September and a category many Fed hawks are watching.

Federal Reserve Governor Stephen Miran, appointed by President Trump in September, has repeatedly said he believes the Fed can lower rates because rents have fallen. When rents are factored into the CPI calculation, Miran says inflation is lower and mitigates any rate increases, something he doesn’t see at this time. Thursday’s report underscored Miran’s argument.

Federal Reserve Governor Chris Waller said Wednesday that he believes inflation will decline in the first half of the year and could provide a reason for the Federal Reserve to continue cutting rates.

“There’s no reason we have to keep rates high just because there’s positive growth in the economy,” Waller said. “That doesn’t cause inflation per se. But since inflation remains high, we can take our time. We can simply steadily reduce the policy rate until it is neutral, keeping an eye on inflation.”

Jeffrey Roach, chief economist at LPL Financial, said he expects some spotty inflation readings in the coming months, but expects inflation to fall next year, opening the door to a few more rate cuts.

“We may have some more positive readings as demand picks up due to larger-than-expected tax returns in early 2026, but we should expect inflation to cool in the latter part of next year,” he said.

Paul Ashworth, chief North America economist at Capital Economics, said the Federal Reserve will have to wait until December data is released next month to verify whether the November CPI report is a statistical blip or genuine disinflation.

“This may reflect a genuine easing of inflationary pressures, but such a sudden stop, particularly in the more persistent services components… is highly unusual, at least outside of a recession,” Ashworth said.

Jennifer Schonberger covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington politics and finance. Follow her on X @Jenniferismos and continue instagram.

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