Inflation Report Underpins Likelihood FOMC Maintains Caution Tomorrow

No unambiguous story emerges from the November CPI report - which probably means that the FOMC will still play things relatively cautiously at Wednesday's decision/statement/release of projection materials vs an outright hawkish/dovish report.

• We noted in our CPI preview that the main impact of today's report would probably be on the tone of the press conference, rather than the prepared materials. In early November, Powell lamented previous "head fakes" in inflation earlier in this cycle as a reason to maintain caution.
• Today's report doesn't quite meet that standard, but the combination of the solid supercore print (+0.44% M/M, 5.2% 3M annualized), overall core running well above target (+0.29% M/M), and the unexpected dip in the unemployment rate in the past week certainly gives the FOMC reason to wait at least one more meeting to change its forward guidance.
• MNI hadn't expected a change in guidance at this meeting, and thought the FOMC was more likely to wait until the Jan or March decisions once there is a little more data. The lack of progress in November's data reduces the likelihood they will make a substantial change in January - as they'll have only one more month of inflation/jobs data in hand. In turn, that may dampen odds for a March cut, which always .
• For most of the previous year, through to Jackson Hole and the September FOMC, Powell kept highlighting core services ex-housing inflation as the key to achieving the 2% target - others on the Committee have brought it up since then but he hasn't really highlighted the metric since, and didn't discuss at the November press conference. Today's print may give him an opportunity to skew hawkish by bringing it up again as a reminder that the Committee doesn't have full confidence that policy is sufficiently restrictive.
• As for the econ projections - which were due to have been submitted at the end of last week - there's probably nothing in here that will force a major reconsideration in last-minute entries (there's a final optional deadline to submit forecasts today).
• Core PCE - which the FOMC uses in its projections, not CPI - looks to have printed softer in November than its CPI counterpart. But the Nov CPI probably solidifies a downward revision in the 2023 core PCE projection for the 2nd consecutive SEP - to 3.4%, down from 3.7%.
• But it may not have an impact on the 2024 forecasts, which are ultimately what participants will have in mind when they are filling in their rate dots - so wouldn't expect any impact on the Fed funds medians anyway.
• On the margins, today's data could have an impact on the December statement, which probably will retain the opening paragraph's language "inflation remains elevated", but that was probably not going to be changed anyway in MNI's view.