Although the November CPI inflation in the USA has stalled, this may not prevent the Federal Reserve from cutting rates next week.

On Thursday, the market widely expects the Federal Reserve to announce interest rate cuts at next week's FOMC meeting, with the federal funds futures market currently indicating that it is nearly 100% likely that Federal Reserve officials will choose to cut rates by another 25 basis points at the FOMC meeting on December 17-18.

It is worth mentioning that this expectation is not based on the latest inflation data, but on the overall economic trend.

From July 2023 to September 2024, the Federal Reserve will raise rates and maintain them at a level of 5.25% to 5.50%. The economic environment at that time was quite different from now; although inflation has not reached the Federal Reserve's 2% target, it has significantly retreated from its peak, and employment conditions are stabilizing. Federal Reserve officials also tend to favor further rate cuts to normalize policy, avoid restricting economic growth, or causing deterioration in employment.

At the same time, media analysis warns not to be surprised by the Federal Reserve's forward guidance following next week's rate cut; the Federal Reserve may cautiously consider subsequent rate cut steps, potentially hinting at a pause in cuts early next year and reducing the number of cuts in 2025.

The Federal Reserve will not deviate from the December rate cut path and should remain optimistic about the trend in declining inflation.

Overnight, the US Bureau of Labor Statistics released data showing that the USA's November CPI increased by 0.3% month-on-month, up from 0.2% in October, the highest level since April this year. However, on a year-on-year basis, the growth was 2.7%, in line with expectations; more importantly, the core inflation, excluding food and energy, remained stable, with November's core CPI rising by 0.3%, consistent with the increase since August.

RSM US economist Tuan Nguyen stated:

The Federal Reserve will not deviate from the path of lowering interest rates in December, which is the general expectation of the market. Given that seasonal factors in inflation reports may fade in the coming months, this is a reasonable short-term decision.

Analysis suggests there is reason to remain optimistic about the decline in the inflation trajectory. In November, there was a noticeable increase in used car prices and hotel prices, but industry data does not indicate that this rise will continue. In addition, there has been a positive change in housing inflation, with rent prices and owner equivalent rent increasing by only 0.2% in November, marking a cycle low.

Neil Dutta, head of economic research at RenMac, pointed out:

The normalization of housing rent inflation will help overall inflation return to the 2% target, which is the area with the largest gap compared to the Federal Reserve's target, with a month-on-month increase of 0.3% in overall housing inflation in November.

Recently, several Federal Reserve officials pointed out that the USA has made significant progress in reducing the overall inflation rate, while the labor market has also returned to normal levels. Last week, San Francisco Federal Reserve President Mary Daly explained that, since inflation is not as far from the 2% target as it once was and the labor market is tending toward balance, monetary policy shouldn't be as tight as it has been in the past two years.

Federal Reserve Governor Waller also stated last week that he is inclined to further reduce interest rates at the December FOMC meeting. Although the recent inflation rebound has raised concerns that price growth may stagnate above the Federal Reserve's 2% target, he indicated that he does not wish to overreact.

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