Thursday's November Consumer Price Index report lands at a particularly tricky moment for markets. Investors have already dialed back their expectations for more Federal Reserve rate cuts, and the inflation data could either validate that caution or throw everyone a curveball.
Fed funds futures currently show just a 24% probability of a fourth consecutive rate cut coming in January. That shift follows Chair Jerome Powell's remarks last week, when he said the central bank is "well positioned" to take its time and see how things develop. Translation: we're not in a rush.
Which makes Thursday's inflation numbers particularly important for figuring out what the Fed does next, especially after this week's messy jobs report muddied the waters.
What Wall Street Expects from November's Inflation Print
Here's where things get a bit annoying: because of the recent government shutdown, the Bureau of Labor Statistics won't be publishing October CPI aggregates. That forces investors to look at two-month averages or year-over-year comparisons instead of the usual month-to-month changes.
The economist consensus tracked by TradingEconomics expects headline CPI to edge up from 3.0% to 3.1% year-over-year, with core inflation staying put at 3.0%.
On Polymarket, traders are betting pretty tightly around that range. The most likely outcome according to the platform is a 3.0% year-over-year reading, with roughly 44% implied probability, followed closely by 3.1% at about 39%. A softer 2.9% print carries only mid-teens odds, while anything at or above 3.2% is sitting in low single-digit probability territory.
Goldman Sachs economist Jessica Rindels thinks there's potential for inflation to come in slightly softer than consensus. "We estimate that the core CPI increased by 0.21% month-over-month on average across October and November, which would lower the year-over-year rate to 2.88% in November," she wrote this week. She pointed to upward pressure from tariffs, vehicle prices and airfares, but noted those forces are being offset by delayed data collection tied to holiday discounting.
Rindels added that "over the next few months, we expect tariffs to continue to boost monthly inflation," though she believes underlying trend inflation should ease further next year as housing and labor market pressures fade.
Bank of America economist Stephen Juneau struck a similar but slightly more cautious tone. "Headline and core CPI likely rose an average of 0.23% m/m over the two-months ending in November," he wrote, suggesting that "goods inflation should remain sticky owing to tariffs, but services should be softer driven in part by health insurance." Bank of America's call is for both headline and core CPI to land at 2.9% year-over-year in November.
How Markets Might Respond
If inflation comes in lower than expected, that could offer meaningful relief to markets, especially given how sentiment has soured since the Fed's December 10 meeting. The Nasdaq 100, tracked by the Invesco QQQ Trust (QQQ), has dropped roughly 4% in the week following that meeting.
A benign or cooler-than-expected November reading could support a rebound in risk assets by reviving hopes for a rate cut as soon as next month. Investors would likely interpret softer inflation as giving the Fed more room to maneuver.
On the flip side, a hotter-than-expected CPI could further pressure the ongoing tech selloff. With January rate cut odds already sitting at just 24%, any upside inflation surprise would likely push Treasury yields higher and put additional weight on equities, particularly the interest-rate-sensitive sectors that have been getting hammered lately.
In other words, Thursday's number matters quite a bit for whether markets can shake off their recent funk or sink deeper into it.