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November CPI Roughly In-Line, Pre-Markets Cool

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The final Consumer Price Index (CPI) report before the next Fed meeting is out this morning, with results reasonably in-bounds with expectations: November headline CPI month over month reached +0.1%, 10 basis points (bps) higher than October and what analysts were expecting this time around. Stripping out volatile food and energy prices, core CPI month over month came in as expected at +0.3%, up 10 bps from the previous month.

Year over year headline CPI is what’s also known as the “Inflation Rate,” and here we are directly in-line with estimates for November: 3.1%, down 10 bps from October, and the one shining beacon of evidence for the narrative that inflation is coming down incrementally. (Although it should be noted June 2023’s Inflation Rate was only 3.0%.) Core CPI year over year was also in-line with expectations at 4.0% — the best print we’ve seen since May 2021.

Prices came down from expectations in Food prices, which perhaps Americans noticed during the week of Thanksgiving, though Shelter overall rose +0.4% last month, and Owner’s Equivalent Rent outpaced estimates, +0.5%. This would likely indicate to the Fed — which comes together today for its latest two-day Federal Open Market Committee (FOMC) meeting — that under the surface, there are still wrinkles of inflation yet to be ironed out. Meaning the expected rate cuts from a plurality of investors will have to wait.

In any case, the chances of a rate hike from the Fed tomorrow (or a rate cut, for that matter) is effectively 0%. This will make the fourth FOMC meeting in the past five where the Fed kept current interest rates pat. We’re still at the highest levels in almost 23 years at 5.25-5.50%, unlikely to go higher at all this cycle, but not soon to turn lower. Good jobs numbers last week will keep the Fed’s focus directly on inflation; if the labor market were to suddenly deteriorate, this would change the narrative, at least somewhat. After all, it’s a dual-mandate the Fed has: inflation under control and a satisfying level of employment.

Pre-market futures initially took this CPI report well, moving to over +100 points on the Dow, +65 on the Nasdaq and +10 on the S&P 500. However, in just the fifteen or so minutes it’s taken me to write this column this morning, we’re now -3 points on the S&P, +28 on the Dow and +10 on the Nasdaq. Keep in mind we’re still riding superlative gains over the past month: +4.5% on the SD&P and Nasdaq, +6% on the Dow and +10% on the small-cap Russell 2000.

Aside from the commencement of the final FOMC meeting of 2023, this afternoon we’ll get a new look at the U.S. Federal Budget for November. This is expected to sink to -$290 billion from -$249 billion the previous month, which was a deficit equal to -5.8% of U.S. GDP. In metrics like these, we’re talking ultra-macro, and will likely have even less to do with influencing the Fed’s decision on interest rates tomorrow at 2pm ET.

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