The CPI report on Wednesday is predicted to reveal that inflation has reached a plateau.

• The 12-month inflation rate for the consumer price index is predicted to be 2.7% in November, which is a 0.1% increase from October. Meanwhile, the core CPI is forecast to remain at 3.3%, the same as October.
• Despite this, traders in the futures market are placing significant bets that policymakers will once again reduce their benchmark short-term borrowing rate by a quarter of a percentage point.
• The report will be released Wednesday at 8:30 a.m. ET.

The Federal Reserve is not likely to raise interest rates next week, as a key economic report due on Wednesday indicates that inflation rate reduction progress has slowed down.

The Dow Jones consensus predicts that the consumer price index, which measures the cost of goods and services across the U.S. economy, will have a 12-month inflation rate of 2.7% in November, a 0.1 percentage point increase from the previous month.

The forecast for core inflation, excluding food and energy, remains unchanged at 3.3% for the month of October. Both measures are expected to increase by 0.3% monthly.

The report will offer additional proof that the high cost of living persists for U.S. households, as the Fed aims for an annual inflation rate of 2%.

"According to Dan North, senior economist at Allianz Trade Americas, the inflation dragon has not been defeated as there is nothing in the measures that indicates a decrease in inflation. Inflation remains a concern, and there is no evidence of a convincing move towards the 2% target."

On Thursday, the Bureau of Labor Statistics will release its producer price index, which is expected to show a 0.2% monthly increase in wholesale prices.

Halting progress, but more cuts

Although inflation has decreased significantly from its peak of around 9% in June 2022, the cumulative effect of price increases has still been a strain on consumers, particularly those with lower incomes. Core CPI has been steadily increasing since July, despite a series of declines.

The Federal Open Market Committee is expected to cut its benchmark short-term borrowing rate by a quarter percentage point when it meets on December 18, according to traders in the futures market. The probability of a rate cut was approximately 88% on Tuesday morning, as measured by the CME Group's FedWatch indicator.

"North stated that if the market remains stagnant like it currently is, the Fed will likely avoid making any significant surprises. Therefore, unless there is a sudden and unforeseen event, North believes the Fed will maintain its current course."

According to Goldman Sachs, the CPI increase for November was likely due to several crucial regions.

The firm's economists predict that car prices will increase by 2% monthly, while air fares will rise by 1%. Additionally, auto insurance is expected to continue to increase, with a 0.5% increase in November following a 14% increase over the past year, as estimated by Goldman.

More trouble ahead

The firm anticipates "further disinflation in the pipeline over the next year" due to the easing of auto and housing rental categories, as well as softening in the labor markets. However, it is concerned that President-elect Donald Trump's planned tariffs could keep inflation high in 2025.

Goldman predicts that the core consumer price index (CPI) will decrease to 2.7% next year, while the Federal Reserve's target inflation measure, the personal consumption expenditures price index, will decrease to 2.4% on the core reading from its most recent 2.8% level.

In an environment with inflation projected to exceed 2% and macroeconomic growth remaining near 3%, the Fed typically would not cut. The Fed employs higher interest rates to control demand, which theoretically would prompt businesses to reduce prices.

Expectations are that the January meeting will be skipped, followed by a possible cut in March. After that, market pricing anticipates only one or at most two additional cuts for the rest of 2025.

"North stated that two percent is not just about touching 2% and bouncing along; it requires a continuous and foreseeable future, which is not evident in any of the reports. Therefore, cutting in that environment is not advisable."