The absence of an upside surprise leaves the Fed on track to cut 25bp in December and provides more room for risk-on Trump trades to run, as inflation data on the hotter side could have led the market to start seeing Trump reflationary policy in a less favorable light.

Bang in-line core inflation leaves the Fed on track to cut rates in December. After a run of unseasonably hot autumn data, today’s number cools fears of an imminent slowdown in the pace of rate cuts. Still, with uncertainty over fiscal and trade policies high there is a risk that the Fed may opt to slow the pace of easing as the New Year chill sets in.

The in-line CPI print shows that while substantial progress has been made in the fight against elevated inflation, the “last mile” is proving more challenging. Underlying inflationary pressures remain on a pace that is modestly above the Fed’s 2% target. With inflation holding steady, the market narrative should not see a significant shift as a result of today’s data.

The market may be concerned that we are at an inflection point, with inflation potentially returning to an upward trajectory. We see inflation modestly higher next year. We don’t think today’s CPI data will do much to the market.

With Wednesday’s CPI in-line with expectations, but still stubbornly above the Fed’s 2% goal, the Fed may have only one rate cut left in December before taking a pause from their easing path.

The incredible move in the stock market post-election has effectively eased financial conditions for stock investors. This easing, combined with incoming fiscal stimulus, may warrant a pause on rate cuts by the Fed in the near future to allow the dust to settle and to process more incoming data.

While the Fed may have a few rate cuts left in them before they enter a holding pattern, the belly and back end of the yield curve may see a further selloff that began in September with the Fed’s initial 50 basis point cut. The Fed cutting short-term rates along with future fiscal stimulus may both ignite inflation again and provide cause for longer term interest rates to rise. We see 10-year Treasury bond yields climbing to 5% in 2025.

The CPI coming in as expected across all components triggered a sigh of relief from Treasuries.

Equity futures edged higher, but with the equity market extended following days of strong performance, the focus was on Treasury yields as concerns over still stubborn inflation has dominated headlines.

Still, the 2.6% year-over-year print, while expected, may keep the Fed mindful from declaring victory over its campaign to quell inflation.

No surprises from the CPI, so for now the Fed should be on course to cut rates again in December. Next year is a different story, though, given the uncertainty surrounding potential tariffs and other Trump administration policies. The markets are already weighing the possibility that the Fed will cut fewer times in 2025 than previously thought, and that they may hit the pause button as early as January.

A hotter-than-expected inflation number could have convinced the Fed to stand pat at its next meeting, so the in-line number can almost be considered as a beat. A December cut is still in the cards.

After the massive rally we’ve seen in stocks, investors are looking for any sort of excuse that can usher in a pullback. Despite core CPI ticking higher for its third-straight month and headline CPI rising, a batch of in-line inflation data isn’t likely to do the trick.

Markets resolved higher following the election, instilling a “buy the dip” mentality on Wall Street. If the market were to sell off in the short term, the pullbacks are likely to be shallow as fund managers buy the dip and look to chase performance into year-end.

Current market odds are pricing in about a 60/40 chance of a 25 basis point rate cut in December. At the very least, this report likely won’t worsen those odds, and perhaps more likely, it could add to investors’ confidence that the Fed will again lower rates. However, a lot will hinge on the upcoming PCE report and non-farm payrolls report later this month and in early December, respectively.

Remember, the Fed is unlikely to be swayed by one data point. Instead, the committee will weigh multiple reports and data points when deciding on its next interest rate decision. If PCE comes in higher than expected and the jobs report is strong, then we could see expectations for a rate cut fall.

The sticky components of inflation continue to ease, giving the Fed some leeway to cut rates next month but they will most likely pause in January. The strength of some cohorts of the consumer is keeping upward pressure on prices as consumer spending hasn’t slowed yet. Stronger than expected economic growth is likely keeping bond yields elevated.

It’s time to stop worrying about the Fed and inflation. Stocks have been on autopilot since the election and today’s numbers do nothing to hurt the trend. December is still in play for a cut.

There were no upside or downside surprises in the October CPI data, which is on balance encouraging because that means inflation continues to normalize.

Corporate Highlights:

• Cava Group Inc. raised its full-year outlook for a third straight quarter and posted quarterly sales that beat market expectations, the latest example of a fast-casual company winning over diners while the rest of the industry struggles.

• Spirit Airlines Inc. is closing in on a deal with creditors that would restructure its crushing debt load in bankruptcy court after discussions for a tie-up with rival Frontier Group Holdings Inc. fell apart.

• Mastercard Inc. projected slower annual net revenue growth for the 2025 to 2027 period, it said Wednesday ahead of its investor day.

• Volkswagen AG raised investment plans in Rivian Automotive Inc. by $800 million, signaling its commitment to the US partner even as electric-vehicle demand softens and the incoming Trump administration threatens to curtail supportive policies.

• Spotify Technology SA reported third-quarter growth in subscribers and profit margins, saying lower marketing and personnel costs helped the music streaming service overcome a tough climate for advertising.

• Charter Communications Inc. agreed to buy Liberty Broadband Corp. in an all-stock transaction.

• Instacart posted strong revenue in the third quarter, a sign of resilience in its core grocery delivery business. However, it forecast adjusted earnings in the current period that fell short of analysts’ expectations.

• Groupon Inc., a shopping deals website, cut its adjusted Ebitda guidance for the full year.

• Wonder Group Inc. is buying Grubhub from Just Eat Takeaway.com NV for about $650 million, acquiring the restaurant delivery service at a steep discount to the $7.3 billion price tag it commanded during the early days of the Covid pandemic.

Key events this week:

• Eurozone GDP, Thursday

• US PPI, jobless claims, Thursday

• Fed speakers include Jerome Powell, John Williams and Adriana Kugler, Thursday

• China retail sales, industrial production, Friday

• US retail sales, Empire manufacturing, industrial production, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.1% as of 10:15 a.m. New York time

• The Nasdaq 100 fell 0.4%

• The Dow Jones Industrial Average was little changed

• The Stoxx Europe 600 fell 0.6%

• The MSCI World Index fell 0.3%

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%

• The euro fell 0.5% to $1.0569

• The British pound fell 0.4% to $1.2703

• The Japanese yen fell 0.2% to 154.96 per dollar

Cryptocurrencies

• Bitcoin rose 3.5% to $91,382.37

• Ether rose 0.4% to $3,294.45

Bonds

• The yield on 10-year Treasuries declined one basis point to 4.41%

• Germany’s 10-year yield advanced two basis points to 2.39%

• Britain’s 10-year yield advanced one basis point to 4.51%

Commodities

This story was produced with the assistance of Bloomberg Automation.

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