U.S. November CPI unexpectedly low, analysts' views diverge: Soft data supports rate cut but concerns over government shutdown impact are needed.

The November inflation data in the United States was significantly lower than market expectations. As a result of the previous government shutdown, data released by the US Department of Labor on Thursday showed that the Consumer Price Index (CPI) rose by 2.7% year-on-year in November, lower than the economists' widely expected 3.1%. Following the release of the data, market expectations for a rate cut by the Federal Reserve in January next year slightly increased. 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 October CPI report, and the omission of month-over-month data in the November report. BLS stated that price data cannot be retrospectively collected, resulting in a gap in monthly inflation changes. The core CPI, which excludes food and energy prices, rose by 2.6% year-on-year, lower than September's 3.0%, indicating further easing of inflation pressure. The financial markets quickly reacted to this news. The three major indices rose; US bond yields declined, with the yield on the 10-year US Treasury falling by 2.2 basis points to 4.13%; the US dollar index weakened, dropping by about 0.12% to 98.25. Many market participants believe that the cooling of inflation provides more room for the Federal Reserve to shift its policy. Chief Economist Brian Jacobsen of Annex Wealth Management stated that the November inflation was significantly lower than expected, with housing inflation, the largest component of the CPI, slowing significantly. He pointed out that while some investors may consider this data unreliable due to the shutdown, other indicators such as rent and used car prices show that the main factors driving inflation in the past are no longer the core sources of current inflation. Jacobsen believes that the Federal Reserve may reconsider further rate cuts based on rising unemployment and moderate inflation data. Chief Market Economist Peter Cardillo of Spartan Capital Securities believes that the core inflation rate dropping to 2.6% year-on-year and overall inflation falling to 2.7% is positive news for the Federal Reserve and the financial markets. If this trend continues, it could pave the way for a more accommodative monetary policy shift, potentially leading to multiple rate cuts in the first quarter of 2026. Jan Nevruzi, US Rates Strategist at TD Securities, noted that this inflation data was below all expectations. While hawks within the Federal Reserve may emphasize technical issues in data collection, without contrary evidence, this report clearly leans dovish. He believes that overall, it is hard to deny the trend of inflation continuing to decline. However, some institutions caution against overinterpreting the data. Joint Global Head of Fixed Income and Liquidity Solutions at Goldman Sachs Asset Management, Kay Haigh, stated that due to the missing October data and limited information collection during the shutdown, this inflation report has a lot of noise and may not be a key factor in 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 inflation signal before the next rate-setting meeting in mid-January. Global Chief Strategist Seema Shah of Principal Global Investors believes that the significantly lower-than-expected November inflation provides strong support for the dovish members of the Federal Reserve to push for a rate cut in January. She stated that although monthly data may be distorted, 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 Jamie Cox of Harris Financial Group 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, with the reasons for maintaining restrictive monetary policy significantly weakening. Chief Investment Officer Chris Zaccarelli of Northlight Asset Management pointed out that while monthly data may still fluctuate, there are currently no signs of sustained high inflation, easing the Federal Reserve's concerns about lowering rates further potentially reigniting inflation. He believes that if dovish views ultimately prevail, further accommodative monetary policy could support stock market performance, with the economy continuing to grow, corporate profits improving, and inflation remaining under control, the market still has room to continue to rise before the end of the year.