The U.S. November CPI unexpectedly low Analysts' views diverge: Soft data supports rate cuts but government shutdown impact should be alert to

Inflation data for November in the United States was significantly lower than market expectations. Due to the prolonged government shutdown, data released by the U.S. Department of Labor on Thursday showed that the Consumer Price Index (CPI) rose by 2.7% year-on-year in November, lower than the economist's consensus of 3.1% in a media survey. After the release of the data, market expectations for a rate cut by the Federal Reserve in January next year increased slightly. Due to the 43-day government shutdown, the Bureau of Labor Statistics (BLS) was unable to collect complete price data for October, resulting in the cancellation of the CPI report for October, and no monthly data was published in the November report. BLS stated that price data cannot be retroactively collected, causing a gap in monthly inflation changes. The core CPI, excluding food and energy prices, rose by 2.6% year-on-year, lower than 3.0% in September, indicating further easing of inflation pressures. Financial markets quickly responded to this news, with major indices rising; U.S. bond yields declining, with the 10-year Treasury yield falling by 2.2 basis points to 4.13%; and the U.S. dollar index weakening, dropping by approximately 0.12% to 98.25. Many market participants believe that the cooling of inflation provides more room for the Federal Reserve to change its policy direction. Chief economist at Annex Wealth Management, Brian Jacobsen, stated that November's inflation was significantly lower than expected, with housing inflation, the largest component of the CPI, slowing significantly. He pointed out that despite some investors believing that the data is less reliable due to the shutdown, factors that have previously driven inflation, such as rents and prices of used cars, are no longer the core sources of current inflation. Jacobsen believes that the Federal Reserve may reconsider further rate cuts based on the rise in unemployment and moderate inflation data. Chief market economist at Spartan Capital Securities, Peter Cardillo, stated that the core inflation rate fell to 2.6% year-on-year, and overall inflation dropped to 2.7%, which is good news for the Federal Reserve and the financial markets. If this trend continues, it will pave the way for a more accommodative monetary policy shift and could even lead to more than one rate cut in the first quarter of 2026. Jan Nevruzi, U.S. Interest Rate Strategist at TD Securities, pointed out that this inflation data was lower than all forecasts. Although some hawks within the Federal Reserve may emphasize technical issues in the data collection process, this is still a markedly dovish inflation report without evidence to the contrary. He believes that overall, it is difficult to deny the ongoing trend of declining inflation. However, some institutions have warned against overinterpretation of the data. Co-Head of Fixed Income and Liquidity Solutions at Goldman Sachs Asset Management, Kay Haigh, stated that due to the missing data in October and limited information collection during the shutdown, this inflation report has a lot of noise and is difficult to be a key basis for Federal Reserve policy decisions. She pointed out that the Federal Reserve is more likely to focus on the December CPI data to get a clearer signal on inflation before the next interest rate meeting in mid-January. Chief Global Strategist at Principal Global Investors, Seema Shah, believes that the significantly lower-than-expected inflation in November provides strong support for the doves within the Federal Reserve to push for a rate cut in January. She stated that despite potential distortions in monthly data, with the backdrop of rising unemployment, the pressure on the Federal Reserve to take action is increasing. She still expects two rate cuts in 2026, and this data increases the likelihood of an earlier rate cut in the first half of the year. Managing Partner at Harris Financial Group, Jamie Cox, stated that the inflation impact of tariffs has largely passed, and the path for the Federal Reserve to cut rates again in January is becoming clearer. The reasons for maintaining a restrictive monetary policy have significantly weakened. Chief Investment Officer at Northlight Asset Management, Chris Zaccarelli, pointed out that although monthly data may still fluctuate, there is currently no sign of sustained high inflation, easing the Federal Reserve's concerns that further rate cuts could reignite inflation. He believes that if the dovish view ultimately prevails, further monetary policy easing could support stock market performance. Against the backdrop of continued economic growth, improving corporate profits, and controlled inflation, the market still has room to rise before the end of the year.