Inflation cools to 2.7% in November, markets cheer, caution required
I have reviewed the delayed November consumer price data. Headline inflation rose at a 2.7% annual rate, cooler than many expected. Stocks and bonds jumped on the print. The victory lap is premature. This is good news, not a final win.
The CPI slowed to 2.7% year over year, cooler than expected, still above the 2% goal.
What this print really says
A lower headline rate helps. It takes heat off households and businesses. It also nudges the Federal Reserve toward an easier stance in 2025. But 2.7% is still above target. Policy makers will not declare mission accomplished on one reading.
The number lands in a messy part of the calendar. November and December can be noisy. Holiday discounting, energy swings, and year end adjustments all matter. Today’s move lowers the temperature, it does not settle the debate.
One month can mislead. Seasonal quirks and revisions are common in November data.
The story inside the index still matters most. Goods inflation has eased across much of this year. Supply chains healed. Retailers managed inventory. Energy costs fell from last year’s peaks. Shelter costs remain sticky, but leading rent data point to slower growth ahead. Services outside housing are the wildcard. That is where wage pressure lives.
What the Fed will watch next
The Fed targets inflation near 2 percent. It also watches the core pulse, not just the headline. That means services prices, shelter, and wages. It wants broad cooling, not just cheaper gas or TVs.
If shelter slows as new leases reset lower, core inflation can grind down. If wage growth cools as hiring normalizes, services inflation can follow. A firm dollar would help import prices. Stable energy would keep the headline calm. The opposite mix, higher wages or a new energy spike, would stall progress.
I expect officials to keep options open. They can welcome the progress, and still stress patience. Cuts come into view if the next few reports confirm a trend. One soft month will not move them by itself.
Markets priced a softer path, fast
The market read the report as a green light. Treasury yields fell as traders leaned into earlier rate cuts. Rate sensitive stocks caught a bid. The dollar dipped as relative yield odds shifted.
These moves fit the setup. Positioning was ready for a cooler number. A lower inflation path supports earnings multiples and lowers discount rates. Credit spreads also prefer a gentle glide path to 2 percent.
Here is the key, markets have moved far on hopes. The next reports must deliver. If they do not, yields can snap back and equities can wobble. That is the risk into year end and early 2025.
Investment playbook, what to do now
Do not chase every pop. Use this cooler print to adjust risk with care. Lean into quality, but keep dry powder for the next wobble.
- Intermediate Treasurys benefit if cuts pull forward, without full long end volatility
- Quality growth with cash flow can handle a slower economy and a lower rate path
- Select cyclicals work if disinflation continues, think industrials tied to backlogs
- Keep ballast, staples and utilities, in case the next print re accelerates
TIPS still deserve a look while inflation sits above target. Real yields are attractive relative to the past decade. If inflation ebbs steadily, nominal bonds also work. The right mix depends on your horizon and risk tolerance.
Liquidity matters. Spreads are tight and year end depth is thin. That can amplify moves in both directions. Set limit orders. Stagger entries. Avoid binary bets around the next print.
Consider a barbell, quality equities with strong margins, plus intermediate Treasurys. Rebalance into strength, not weakness.
The checklist from here
I am watching these markers into the next two reports:
- Core services outside housing, the clean read on wage pressure
- Shelter inflation, expected to cool as new leases filter in
- Core goods prices, to confirm supply chain healing is intact
- Energy base effects, a swing factor for the headline
If this list trends in the right direction, the Fed can pivot with confidence. That would lock in lower rate volatility and extend the soft landing case. If not, rate cut hopes will push out, and valuations will need to adjust.
The bottom line
Today’s 2.7% is a clear step down from the heat of 2022 and 2023. It is not the finish line. Markets priced in relief and then some. The Fed will like the direction, but it will wait for proof. Investors should do the same. Celebrate the cooler reading, then stick to a disciplined plan.
