Inflation in the United States climbed to 2.7% in November, driven largely by housing costs. While the Federal Reserve is expected to cut interest rates by 25 basis points next week, inflation’s persistence above the central bank’s 2% target complicates its path forward.

According to the Bureau of Labor Statistics (BLS), the Consumer Price Index (CPI) rose 0.3% monthly, in line with market expectations. Core inflation, which excludes volatile food and energy prices, held steady at 3.3% annually.

Housing Costs Dominate Inflation Metrics

Shelter costs accounted for a staggering 40% of the total CPI increase in November. The shelter index rose 0.3% for the month and 4.7% annually, maintaining its role as a key driver of inflation. Modest gains in rents and owner-equivalent rent, both up 0.2%, represented the smallest monthly increases in over two years. Despite these signs of moderation, housing-related inflation remains stubbornly high, with Fed officials hoping lease renegotiations will ease price pressures.

In contrast, vehicle prices reversed recent trends. Used car prices rose 2%, while new vehicle prices climbed 0.6%, underscoring persistent challenges in the goods sector. Economists warn that rising car prices could stall broader disinflation efforts.

Food prices saw mixed results, increasing 0.4% monthly and 2.4% annually, while cereal and bakery products recorded a historic monthly decline of 1.1%, the sharpest drop since 1989.

Federal Reserve Faces Tight Decisions

The Federal Open Market Committee (FOMC) meeting on December 18 will determine the Fed’s next steps in balancing inflation control with economic stability. Markets overwhelmingly expect a 25-basis-point rate cut, marking the fourth consecutive reduction since September. However, the persistence of “sticky” inflation in key categories like shelter and services raises questions about the Fed’s capacity to ease aggressively.

Treasury Secretary Janet Yellen voiced concerns about potential economic headwinds, including tariffs proposed by President-elect Donald Trump, which she warned could increase household costs and hinder competitiveness. Political and economic pressures are mounting as the Fed navigates these challenges.

Market Reactions

Wall Street is closely monitoring Fed policy amid the latest inflation data. Stock futures edged higher after the release, as markets interpreted the figures as supporting further rate cuts. Analysts caution, however, against overestimating the Fed’s flexibility, emphasizing the need to tread carefully as inflation pressures linger in critical sectors.

As the Federal Reserve prepares for its December meeting, its decisions will have significant implications for inflation management and economic stability heading into 2025.