US CPI data set to show inflation broadly steadied in November, keeping Fed dilemma alive
- The US Consumer Price Index is forecast to rise 3.1% YoY in November, slightly higher compared with September.
- The inflation report will not include monthly CPI figures.
- November inflation data could drive the US Dollar’s valuation by altering January Fed rate cut expectations.
The United States (US) Bureau of Labor Statistics (BLS) will publish the all-important Consumer Price Index (CPI) data for November on Thursday at 13:30 GMT.
The inflation report will not include CPI figures for October and will not offer monthly CPI prints for November, due to a lack of data collection during the government shutdown. Hence, investors will scrutinize the annual CPI and core CPI prints to assess how inflation dynamics could influence the Federal Reserve’s (Fed) policy outlook.
What to expect in the next CPI data report?
As measured by the change in the CPI, inflation in the US is expected to rise at an annual rate of 3.1% in November, edging up from September’s 3% reading. The core CPI inflation, which excludes the volatile food and energy categories, is also forecast to rise 3% in this period.
TD Securities analysts expect annual inflation to rise at a stronger pace than anticipated but see the core inflation holding steady. “We look for the US CPI to rise 3.2% y/y in November – its fastest pace since 2024. The increase will be driven by rising energy prices, as we look for the core CPI to remain steady at 3.0%,” they explain.
How could the US Consumer Price Index report affect the US Dollar?
Heading into the US inflation showdown on Thursday, investors see a nearly 20% probability of another 25-basis-point Fed rate cut in January, according to the CME FedWatch Tool.
The BLS’ delayed official employment report showed on Tuesday that Nonfarm Payrolls declined by 105,000 in October and rose by 64,000 in November. Additionally, the Unemployment Rate climbed to 4.6% from 4.4% in September. These figures failed to alter the market pricing of the January Fed decision as the sharp decline seen in payrolls in October was not surprising, given the loss of government jobs during the shutdown.
In a blog post published late Tuesday, Atlanta Fed President Raphael Bostic argued that the mixed jobs report did not change the policy outlook and added that there are “multiple surveys” that suggest there are higher input costs and that firms are determined to preserve their margins by increasing prices.
A noticeable increase, with a print of 3.3% or higher, in the headline annual CPI inflation, could reaffirm a Fed policy hold in January and boost the US Dollar (USD) with the immediate reaction. On the flip side, a soft annual inflation print of 2.8% or lower could cause market participants to lean toward a January Fed rate cut. In this scenario, the USD could come under heavy selling pressure with the immediate reaction.
Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for the US Dollar Index (DXY) and explains:
“The near-term technical outlook suggests that the bearish bias remains intact for the USD Index, but there are signs pointing to a loss in negative momentum. The Relative Strength Index (RSI) indicator on the daily chart recovers above 40 and the USD Index holds above the Fibonacci 50% retracement of the September-November uptrend.”
“The 100-day Simple Moving Average (SMA) aligns as a pivot level at 98.60. In case the USD Index rises above this level and confirms it as support, technical sellers could be discouraged. In this scenario, the Fibonacci 38.2% retracement could act as the next resistance level at 98.85 ahead of the 99.25-99.40 region, where the 200-day SMA and the Fibonacci 23.6% retracement are located.”
“On the downside, the Fibonacci 61.8% retracement level forms a key support level at 98.00 before 97.40 (Fibonacci 78.6% retracement) and 97.00 (round level).”
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.