The inflation report often has multiple interpretations that allow observers to predict the true underlying patterns of price growth, including core inflation excluding food and Energy, as well as so-called super core inflation, which measures service prices excluding housing and rental costs.

The Cleveland Fed has also compiled an indicator called the median CPI, which measures the inflation rate of components that are at the 50th percentile in terms of spending weights in price changes. There is also a more complex trimmed mean CPI of 16%, which measures all components except for the hottest and coldest components.

These Indicators serve different purposes.

For Fed governor Waller, what matters is the breadth of inflation. That is, how many components have rapidly rising prices, how many components have slowly rising prices, or are showing a downward trend. Waller's statements often impact the market.

In his critical speech delivered in September titled 'The Time Has Come' (meaning he believed it was time to cut rates and that the Fed would start cutting rates in less than two weeks), he mentioned the number of components with an inflation rate below 2.5%.

But that is not the case now. Waller and his Fed colleagues are currently in a blackout period where discussions about monetary policy are prohibited. Vanda Research's global macro strategist Viraj Patel shared a post on Social Media showing what he described as the Waller Rule trending up.

"The breadth of inflation is very high, especially in November," Patel said. "What is concerning is that the six-month trend is gradually entering the seasonal active period of inflation."

Patel stated that he is measuring the Waller rule by looking at the detailed spending categories as reported by the USA Bureau of Labor Statistics.

Regardless of the merits of the Waller rule, market participants are now overwhelmingly expecting the Federal Reserve to cut interest rates next week. According to the CME Group's FedWatch tool, based on interest rate futures trading, the likelihood of a 25 basis point cut later this month is 96%.

Waller himself has also indicated in recent public comments that he leans towards a rate cut.

Before the already released employment and CPI data, he stated: "The policy remains sufficiently restrictive that an additional rate cut at our next meeting would not significantly change the stance of monetary policy, and there is enough room to slow the pace of rate cuts if necessary to ensure we move towards the inflation target. That is to say, if we receive unexpected data before our next meeting indicating that our forecasts for a slowdown in inflation and a slowing but still robust economy are incorrect, then I would support maintaining the policy rate unchanged."

Editor/ping