Last week November’s inflation numbers were released. In today’s Weekly Market Recap, JP Morgan, one of the Portfolio Strategists we utilize for client accounts, looks underneath the overall inflation numbers to analyze where inflation may be going, including what could happen with potential Trump tariffs…
This year’s heightened bond market volatility has kept investors on their toes. With the Fed starting its easing cycle in September – later than initially anticipated – concerns are now emerging about whether the cycle will end sooner than expected. Last week’s inflation report was in sharp focus as investors sought answers to three key questions: has inflation progress stalled, could proposed tariffs derail it and
what might the Fed do next?
November’s inflation readings matched expectations. Year over year headline inflation rose 0.1% to 2.7%, while core inflation, which better reflects underlying trends, flatlined at 3.3% for the third consecutive month. On the surface, this suggests stalling, but underlying details are more encouraging. Core inflation is entirely being driven by core services, with core goods still in deflation on a year-over-year basis. Within core services, rents – which are responsible for more than half of core services inflation – have slowed to their weakest pace in more than three years, and new leases point to further moderation ahead. This suggests that inflation progress hasn’t truly stalled, with more cooling in the pipeline.
However, President-elect Trump’s proposed tariffs could reignite core goods inflation, derailing future progress. While the Fed has emphasized that it won’t preemptively adjust policy, and it may well cut rates by .25% this week, this concern could impact its projections, signaling fewer rate cuts in 2025. Overall, with so much uncertainty around tariffs and inflation, bond market volatility is unlikely to fade anytime soon.
