Inflation data is the main focus for today and it won't come more than one before the Fed meets. That's especially with questions about the need to stop for the central bank.
All that being said, it is a tall order to move current market prices in that direction. Traders see ~85% probability of a 25 bps rate cut for next week. So, it will take a real hit on today's inflation estimates to find those opportunities back.
And judging by analysts' estimates, the data is unlikely to be surprisingly high. Annual headline inflation is estimated to come in at 3.3% for November. However, the range of estimates is only 3.2% to 3.4%. So, that speaks to the lack of capacity for the data to surprise.
Even with a slightly higher reading, it reaffirms that the deflationary path is not without bumps in the road. The pace is definitely stopping but as we know from the beginning of the year, the real challenge is that inflation is not down from 6% to 3%. It was always about getting inflation down from 3% to 2% in a sustainable way. And that's where we are.
Barring any major surprises, I don't see this as one that will significantly change the Fed's prospects and outlook going into next week. This is also the Fed's last chance to sneak in one more rate cut before Trump takes over and/or if they are squeezed further as the economy slows. Therefore, the market reaction after the data may not be as interesting or as big given the circumstances.
Then again, keep in mind that this isn't the first time traders have chosen to run the other way just a week before the FOMC meeting. That's a tail risk to be aware of when looking into the post-CPI reaction in the coming day(s).
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