On November CPI: Good, Not Great

Headline CPI inflation for November came in far below the Fed’s target for the second month in a row. But it slightly missed consensus expectations for flat, and our own expectations for outright deflation. It’s not the drop-dead evidence of deflation we had expected and wanted before tomorrow’s FOMC. The CPI version of Powell’s “supercore” index showed no sign of slowing, and though it is less than a quarter of the basket weight, Powell seems to rely on it almost exclusively. We are not worried that it is “sticky” – it is merely laggy. Nothing about this changes our strong expectation (and the market’s) for no rate hike tomorrow. The only question is the extent to which the 2024 “dot plot” gets lowered. It already indicates that, despite Powell’s claims to the contrary, the committee is indeed thinking about cuts already. We think the moderation of Q3’s torrid growth, and new inflation data however imperfect, will be enough to get that dot lowered, and start a more robust debate about when rate cuts can begin. We still think the first cut comes in March.