As November neared its conclusion, U.Sstock markets exhibited a noticeable divergence in performanceThe cyclical sectors faced persistent pressures, and technology stocks maintained a robust momentum, suggesting a continuing shift in investor sentimentWith a fresh batch of economic data released, the prospect of a Federal Reserve interest rate cut in December seemed almost certain, therefore, market participants began shifting their focus to the economic policy outlook for the upcoming year, significantly heightening interest in the impending economic forecast updates and dot plot methodology.

The November Consumer Price Index (CPI) recorded a rise of 0.3%, marking a seven-month high and pushing the year-on-year growth rate up to 2.7%. Meanwhile, the Producer Price Index (PPI) also saw an increase that exceeded expectations, with the annual growth rate accelerating by 0.4 percentage points to reach 3.0%. This situation leaves businesses grappling once again with the challenge of how to manage rising costs effectively.

Bob Schwartz, a senior economist at Oxford Economics, shared insights during an interview with First Financial, stating that the overall CPI for November demonstrated the enduring strength of American consumers

A significant portion of the price pressures stemmed from discretionary spending categories such as automobiles, hotels, and airline ticketsConcurrently, some sticky inflation components, including housing and service sector prices, had started to show signs of easing.

In parallel, labor market data also revealed fluctuations as the year drew to a closeAccording to the U.SDepartment of Labor, the number of new unemployment claims rose by 17,000 to 242,000, potentially reflecting seasonal variations following the Thanksgiving holiday, rather than indicating a sudden shift in the labor market dynamicsFollowing significant constraints due to strikes and hurricanes in October, the non-farm employment growth accelerated in November, yet the unemployment rate ticked up to 4.2%. Recent purchasing managers' surveys indicated that numerous businesses were holding off on finalizing their next hiring plans, awaiting clarity on the new government's policy implementation and its ramifications.

In the medium to long term, U.S

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Treasury bonds reached their highest levels in nearly three weeks as market participants eagerly awaited the Fed’s assessment of inflationary pressures juxtaposed with employment market conditions while considering the impact of tariffs and tax cutsThe two-year Treasury note, closely tied to interest rate expectations, surged by 14.1 basis points to 4.238%, while the benchmark ten-year Treasury note increased by 24.3 basis points to reach 4.398%. According to data from the Chicago Mercantile Exchange's FedWatch tool, the market now anticipates a 95% likelihood that the Fed will cut rates by 25 basis points next week, but is expected to remain on hold come January of the following year.

Analysts at Deutsche Bank expressed skepticism regarding the pace of future rate cuts in light of the most recent price indicators, particularly given the unexpected increase in the PPI

A report from Stifel stated, "The November inflation indicators reinforce the idea that improvements in price pressures are losing momentum, further stressing the necessity for a patient approach to monetary policy actions through 2025."

Schwartz anticipates that the Federal Open Market Committee (FOMC) is likely to announce a rate cut in the upcoming meeting, but they might use the post-meeting statement along with the updated economic forecasts to convey that the normalization cycle may be slowing down"From comments made by Fed officials, it is apparent that there are uncertainties regarding both economic health and the neutral federal funds rate," he added.

In Schwartz’s analysis, it appears unlikely that the Fed will preemptively factor in potential government policy changes into their forecasts, estimating the Fed will lower rate cut expectations for next year to three

He believes the risks are skewed toward delaying rate cuts for a longer duration, which could exert upward pressure on inflation.

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