US consumer inflation slowed in November, increasing by 7.1% annually, while stock futures surged.

 

According to government data released on Tuesday, US stock futures increased by more than 3% after consumer inflation declined in November, justifying a less hawkish Federal Reserve and providing some relief to policymakers. The figure is still almost three times the pre-pandemic rate, though.

According to data issued by the Labor Department, the consumer price index (CPI), a frequently monitored indicator of inflation, increased 7.1% from a year ago, down from 7.7% in October.

The consumer price index increased barely 0.1% from month to month in November, down from 0.4% in October.The Nasdaq 100 futures increased more than 4%, the S&P 500 contracts increased, and the policy-sensitive two-year Treasury yield decreased more than 15 basis points.Although most economists anticipate a significant slowdown in annual price growth for the coming year, it is uncertain how difficult or difficult the return to the central bank's aim will be.

"Today's US CPI data will give us a sense of how market expectations for the Fed's terminal rate will conflict with the dot plot projections that will be released tomorrow, and that will, in all cases, hammer any potentially upbeat market sentiment, "Senior analyst at Swissquote Bank, Ipek Ozkardeskaya, wrote in a note. Therefore, even if today's market rise and CPI data are excellent, they might not last until the Fed meeting on Wednesday."

A half-point hike in interest rates is anticipated from the Fed.

The US Fed is anticipated to announce a half-point interest rate increase when its two-day policy meeting comes to an end tomorrow. Rates would reach their highest point since 2007 even though that increase would be less than what was implemented in the previous four meetings.

The probability that the Fed will raise the benchmark rate by 50 basis points has now increased to 89%, with rates expected to reach their peak in May 2023 at 4.98%.The benchmark S&P 500 has fallen 16.3% this year due to concerns that the Fed's relentless policy tightening will cause the economy to enter a recession.Nevertheless, the index has recovered from its October lows on expectations that the Fed will limit the rate of rate increases.India's annual retail inflation increased 5.88% in November from 6.77% the previous month, which is far less than the poll's median expectation of 6.40%.Currently, traders are concentrating on the US retail inflation statistics and the Federal Reserve's upcoming policy announcement.

The question for investors is whether or not that will be enough to temper expectations for US interest rates to peak around 5% by May or June.