Investors shouldn’t count on much help from the Fed next year

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Subscribe to enjoy similar stories. Could the Federal Reserve be done cutting rates after December? That shouldn’t be ruled out. Markets seemed undisturbed by Wednesday’s inflation data, which showed consumer prices rising 2.7% in November from a year earlier, up from 2.6% in October.

The S&P 500 rose 0.8%, and the Nasdaq closed above 20,000 for the first time. Perhaps that reflected relief that the reading was merely in line with expectations instead of ticking even higher and delivering a nasty surprise. Nonetheless, the data confirms an unsettling trend that inflation’s decline has halted, or at least stalled.

Core consumer prices excluding food and energy rose 3.3% from a year earlier, similar to the pace at which they have been rising for several months now. Of particular concern was services inflation which, excluding energy services, clocked in at 4.6% year over year. That doesn’t seem like enough to discourage the Fed from plans to cut rates at its December meeting.

As of Wednesday, futures markets were pricing in a 96% chance of that happening, according to the CME FedWatch tool. Markets are betting that the gradual slowdown in hiring over the past few months makes the Fed still comfortable with some additional easing. Month-to-month swings in such factors as labor strikes and hurricanes have made the data somewhat hard to read, but the underlying trend is still clear: The three-month average for job gains is down to 173,000 in November from 243,000 at the start of 2024.

Beyond December, futures prices now imply two or three more quarter-point cuts by the end of next year, assigning a roughly 30% chance to each scenario. That could be too optimistic. Despite the slowdown, jobs are still posting decent gains, and