Dive Brief:

• Inflation slowed to a less-than-forecast 2.7% annual pace last month from 3% in September, the Bureau of Labor Statistics reported Thursday, noting that the federal government shutdown prevented data collection for six weeks ending in mid-November.
• The so-called core consumer price index, excluding volatile food and energy prices, rose 2.6% last month compared with 3% in September. BLS calculated annual inflation rates for its report but left blank the monthly price gains for 18 of 21 categories, including energy, services and groceries.
• “November’s CPI data have to be treated cautiously,” Pantheon Macroeconomics Chief U.S. Economist Samuel Tombs said, noting that BLS restarted data collection on Nov. 14. The inflation “trend will only be clear in December’s data” scheduled for release next month, he said in a note.

Dive Insight:

In recognition of the potential distortion from the gap in data collection, traders in interest rate futures only increased by roughly 2 percentage points the probability that the Federal Reserve will cut the main interest rate at their next scheduled meeting.

Futures traders see 26.6% odds that policymakers will trim the federal funds rate at their Jan. 27-28 gathering compared with 24.4% odds on Wednesday, according to the CME Group’s FedWatch tool.

Policymakers this month trimmed the benchmark interest rate by a quarter point to a range between 3.5% and 3.75%, as concerns about weakness in the job market overrode worries that inflation persists above the central bank’s 2% target.

Fed officials in a median projection forecast just one quarter-point reduction in the federal funds rate in 2026. They expect that their preferred measure of inflation — the personal consumption expenditures price index less volatile food and energy prices — will end 2026 at 2.5%, 0.1 percentage point lower than their September estimate.

Fed officials for months have tried to navigate the constraints of what they call “two-sided” risks, as stubborn inflation and a softening labor market imperil their efforts to ensure price stability and full employment in line with a congressional mandate.

Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid cast dissenting votes at the recent meeting, saying they favored no rate change. Fed Governor Stephen Miran dissented while calling for a half-point cut in the benchmark rate.

Fed Chair Jerome Powell, in a news conference following the Dec. 10 policy decision, noted that the absence of data collection during the 43-day shutdown may create distortions in inflation data for the period.

Still, the fresh CPI data suggest that inflation as measured by core PCE will slow to 2.7% in November from 2.9% in September, Tombs said.

“We continue to expect core PCE to fall swiftly in 2026, almost returning to the [Fed’s] 2% target by year end,” he said. “The coast is clear, therefore, for the [Federal Open Market] Committee to continue to ease policy next year if the labor market remains weak, even though a skip in January is likely.”