Inflation And Unemployment

How the latest CPI report changed the landscape in the markets and what we expect the Fed to do next, because as you will see, there is a serious chance that another rate cut may be approaching.

INFLATION

So, yesterday we got the Consumer Price Index report, better known as CPI. It is the main tool we use to see how inflation is moving. And the news was, at first glance, very good. In fact, it came in better than analysts’ expectations, something we have not seen very often in recent months.

Inflation for November came in at 2.7%, significantly lower than the 3.1% the market was expecting.

Even more important, core inflation, meaning excluding food and energy, also dropped to 2.6%, down from 3% in September.
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This marks the first meaningful slowdown after a period in which inflation seemed stuck at elevated levels.

But caution is needed here. As many analysts point out, this report comes with some caveats. First, in October no data were collected due to the government shutdown, so the November report is based on only half a month of data. Second, since the data were collected after mid November, they likely captured a large number of Black Friday discounts, which may have artificially lowered prices. This means the decline could be temporary rather than a true underlying trend.

So yes, the drop is encouraging, but it is wise to remain somewhat cautious. Still, the broader picture is clear. Inflation appears to be easing.

Markets, however, celebrated. And that is no exaggeration. Wall Street reacted with strong enthusiasm, especially in technology stocks.

Investors interpreted the lower inflation reading as a signal that the Fed may not need to keep interest rates high for much longer.

At the same time, bond yields fell, with the 2 year yield at 3.45% and the 10 year at 4.12%. This is a classic signal that investors are pricing in additional rate cuts. The 2 year yield in particular is highly sensitive to expectations around the Fed’s next moves.

UNEMPLOYMENT

And this brings us to the other big piece of news, jobless claims.

Initial claims fell to 224,000, down from the previous reading of 237,000. In other words, fewer people lost their jobs compared to the prior week.

However, continuing claims, meaning those who remain unemployed and have not yet found work, rose to 1.89 million from 1.83 million. This points to a small but steady slowdown in the labor market. And this is something the Fed is watching very closely. Because as the labor market cools, wage pressures ease, and that in turn reduces inflation pressures.

So what does this mean?

The Fed now has the perfect setup to proceed with additional rate cuts sooner than previously expected. And this is great news for investors and for anyone with loans. The market is now pricing in at least three rate cuts during 2026, which, if confirmed, would significantly reshape the landscape.