An important economic report set to be released on Wednesday is expected to show that the Federal Reserve's progress in reducing inflation may have stalled.

The November CPI data will be the latest test of whether inflation's resurgence will endanger the US economy, after the Federal Reserve has cumulatively cut rates by 75 basis points in 2024 and is currently discussing the last rate decision of the year.

The report is scheduled to be released at 9:30 PM Beijing time on Wednesday, and the market expects to show that the overall inflation rate year-on-year growth will rise to 2.7%, slightly higher than October's 2.6%, and month-on-month growth will rise by 0.3%, also higher than October's 0.2%.

Excluding volatile costs such as food and gasoline, the core CPI is expected to rise by 3.3% year-on-year in November, marking the fourth consecutive month reaching this level, with month-on-month growth expected to remain flat at 0.3% as in the previous month.

Given that the Federal Reserve has set its annual inflation target at 2%, this report will further demonstrate that the high cost of living remains an undeniable reality for American families.

Dan North, Senior Economist at Allianz Trade Americas, stated: "Looking at these data, there is no sign that the inflation dragon has been slayed. Inflation remains present and shows no convincing signs of approaching 2%."

In addition to the consumer price data released on Wednesday, the Bureau of Labor Statistics will also release the latest PPI index on Thursday, which is expected to rise by 0.2% month-on-month.

Rick Rieder, Chief Investment Officer for Global Fixed Income at BlackRock, wrote last Friday, "The Federal Reserve should be able to cut rates in December, but the latest CPI report has now become another important milestone in the Fed's policy adjustment."

Inflation may remain stubborn.

However, it is certain that inflation has fallen significantly from the CPI cycle peak of about 9% in June 2022. However, the cumulative effects of rising prices have become a burden for consumers, especially among lower-wage earners. Core CPI has been steadily rising since July, following a series of stable declines.

Due to rising costs of housing and services such as insurance and healthcare, the core inflation rate remains persistently high. With auction prices rebounding, used car prices may rise, while economists are divided on whether airfares will increase.

Goldman Sachs stated that the CPI rise in November could stem from several key areas. The company's economists predicted that car prices are expected to rise by 2% month-on-month, and airfare prices are expected to rise by 1%. Additionally, the headache of rising auto insurance premiums may continue, with Goldman estimating a 0.5% increase in November, following a 14% rise over the past year.

However, Bank of America believes that the rate of increase in airfare prices will slow. Bank of America economists Stephen Juneau and Jeseo Park wrote in a report, "After soaring every month for the past three months, we expect a 1% month-on-month decline in airfare prices, which will turn the contribution to core inflation from +3 basis points to -1 basis point."

Due to falling airfare prices, these two expect the core inflation rate to drop to 0.2% month-on-month, but they noted that this category remains extremely volatile.

The Federal Reserve's troubles are about to begin.

For the Federal Reserve, trouble still lies ahead. While Goldman Sachs believes that with the easing of auto and housing rental categories and a softening labor market, "inflation will further slow in the coming year," the company is also worried that the tariffs in President Trump's proposed plans could keep inflation high in 2025.

Trump's election further complicates the inflation outlook, with some economists believing that if Trump fulfills his major campaign promises, the US could face a resurgence of inflation.

Economists believe that policies proposed by Trump, such as imposing high tariffs on imported goods, cutting corporate taxes, and restricting immigration, could lead to inflation. These policies may further complicate the Federal Reserve's future interest rate path.

Goldman Sachs expects core CPI inflation to soften but only to 2.7% next year, while the Federal Reserve's inflation measure—the core PCE price index—is projected to fall from the latest 2.8% to 2.4%, still above the Federal Reserve's 2% target.

Given that inflation is expected to remain well above 2% while macroeconomic growth is still approaching 3%, this is usually not an environment where the Federal Reserve is willing to cut rates. The market expects the Federal Reserve to skip the January meeting next year and then possibly cut rates again in March.

As of Tuesday, the market continues to expect the Federal Reserve to cut rates by another 25 basis points in December, with the likelihood of a rate cut rising from about 73% a week ago to 86%.

Bank of America stated in its report, "The labor market has rebalanced, supply constraints have largely faded, and inflation expectations remain stable. In other words, given that we expect tariffs, fiscal, and immigration policies to change, inflation progress should stagnate next year."

The Goldman Sachs economic team led by Jan Hatzius agreed in a report released on Monday, stating that due to the rebalancing of auto, housing rental, and labor markets, inflation should further slow next year, but this will be offset by "tariff policy escalations."

As Wells Fargo's economic team stated, the last step is always the hardest, "Disinflationary momentum is weakening, and new headwinds (such as the possibility of tariffs and tax cuts) have emerged, making the journey of inflation returning to the Federal Reserve's 2% target increasingly difficult."

Allianz's North also stated:

"When the market is as certain as it is today, the Federal Reserve does not want to create too much surprise. So, unless we see an unexpected surge in inflation, I am very confident that the Federal Reserve has locked in its target. To me, the Federal Reserve's 2% target means inflation needs to consistently reach 2% in the foreseeable future, and if there are no signs of that in these reports. In such an environment, you really don't want to cut rates."

Gold prices seem to have broken out of consolidation; where is the good entry point for bulls?

On Wednesday, gold reached a near two-week high. Previously, Goldman Sachs reaffirmed its bullish stance on gold prices and rebutted some bearish views in the market, stating that gold prices cannot rise to $3000 per ounce before the end of 2025 while the dollar continues to strengthen.

Kyle Rodda, a financial market analyst at Capital.com, believes, "The CPI data expected by the market basically opens the green light for the Federal Reserve to cut rates next week, which could be the catalyst for gold we need to see."

On the technical side, FXStreet analysts noted that daily charts show gold closed above the 50-day SMA ($2670) on Tuesday, breaking out of a consolidation pattern that lasted for 10 trading days. The 14-day RSI is trending upwards above neutral levels, indicating that the short-term upward momentum in gold has not yet reached its limit. If the US November CPI released tonight is weaker than market expectations, it could likely drive gold prices further up to the November 25 high of $2725. If the rally can expand, bullish targets will be set at $2750. A breakout above this level would be a good entry point for gold bulls, as prices may further test the resistance at the historical high of $2790.

If the CPI data exceeds expectations and rebounds, gold may face new headwinds, with bearish targets possibly at the 50-day SMA support level ($2670). If gold returns to the recent trading range, attention should be paid to the 21-day SMA ($2638) and last week's low of $2613.

Article reposted from: Jin10 Data