NEWS AND INSIGHTS | INSIGHTS

CIO Notebook: Inflation Higher in November as Fed Weighs December Cut

December 11, 2024
Shannon Saccocia, CFA, Chief Investment Officer—Private Wealth

The combination of modestly improving services inflation and still muted (if admittedly higher) goods inflation is likely enough to support a 0.25% interest rate cut from the Fed next week

U.S. CPI was in line with expectations in November, despite whispers of a potentially hotter print given continued robust economic growth. U.S. headline CPI was reported up +0.3% month-over-month and up +2.7% year-over-year while core CPI was up +0.3% month-over-month and up +3.3% year-over-year. Admittedly, headline CPI came in ahead of October’s print while core CPI stubbornly remains well above the Fed’s 2% target despite meaningful progress in 2024.

Driving the tick higher in headline CPI was an acceleration in food and energy prices compared with the month prior, with food broadly up +0.4% (+2.4% year-over-year) and energy up +0.2%. More specifically, food at home was up +0.5% as Americans laid their tables for Thanksgiving and gasoline prices rose +0.6% on a month-over-month basis as an estimated record number of people traveled by car for holiday celebrations. However, it is worth noting that energy prices overall have continued to trend lower, and, despite this month’s uptick, the trend has been flat to negative for most of 2024.

Taking a closer look at core CPI, medical care was up +0.3% in November, flat to October, while used car and truck inflation cooled month-over-month from +2.7% to +2.0%. Airline fares and motor vehicle insurance, which have both been increasing at an above trend monthly pace, both cooled modestly this month, although they remain up +12.7% and +4.7% year-over-year, respectively. Even shelter, which continues to pressure core CPI higher, came in at only +0.3% month-over-month with owners’ equivalent rent up only +0.2% for November; this equates to an increase of +4.9% year-over-year.

The combination of modestly improving services inflation and still muted (if admittedly higher) goods inflation is likely enough to support a 0.25% interest rate cut from the Fed next week. What happens after that, however, is likely predicated on how strong the U.S. economy continues to be and what actions are taken by the incoming Trump administration that could potentially drive prices higher or lower. Tariffs, immigration reform, and energy policy could all have meaningful implications for progress towards the Fed’s 2% goal and are hard to quantify without greater policy clarity.

In the short term, however, markets are reacting positively to the print; similar to last month, bond traders in particularly were bracing for an upside surprise. The odds of a rate cut next week jumped to almost 100%, Treasury yields moved lower, and stocks took the cue as well, opening in positive territory after a difficult trading session on Tuesday.

IMPORTANT INFORMATION:

This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This material is general in nature and is not directed to any category of investors and should not be regarded as individualized, a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. Diversification does not guarantee profit or protect against loss in declining markets. Investing entails risks, including possible loss of principal. Investments in private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in private equity are intended for sophisticated investors only. Unless otherwise indicated, returns shown reflect reinvestment of dividends and distributions. Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.

Portfolio positioning views expressed herein are those of Neuberger Berman’s Private Wealth Investment Group, which may include those of the Neuberger Berman’s Asset Allocation Committee. Asset allocation and positioning views are based on a hypothetical reference portfolio. The Private Wealth Investment Group analyzes market and economic indicators to develop asset allocation strategies. The Private Wealth Investment Group works in partnership with the Office of the CIO. The Private Wealth Investment Group also consults regularly with portfolio managers and investment officers across the firm. The Asset Allocation Committee is comprised of professionals across multiple disciplines, including equity and fixed income strategists and portfolio managers. The Asset Allocation Committee reviews and sets long-term asset allocation models, establishes preferred near-term tactical asset class allocations and, upon request, reviews asset allocations for large, diversified mandates. Asset Allocation Committee members are polled on asset classes and the positional views are representative of an Asset Allocation Committee consensus. The views of the Asset Allocation Committee and the Private Wealth Investment Group may not reflect the views of the firm as a whole and Neuberger Berman advisers and portfolio managers may take contrary positions to the views of the Asset Allocation Committee or the Private Wealth Investment Group. The Asset Allocation Committee and the Private Wealth Investment Group views do not constitute a prediction or projection of future events or future market behavior. Defensive positioning generally means an underweight bias on allocations to risk assets such as equities and alternatives. Positioning views may change over time without notice and actual client positioning may vary significantly. Discussion of yield characteristics or total returns of different asset classes are for illustrative purposes only. Such asset classes, such as equities and fixed income, may have significantly different overall risk-return characteristics which should be consider before investing.

The information in this material may contain projections, market outlooks or other forward-looking statements regarding future events, including economic, asset class and market outlooks or expectations, and is only current as of the date indicated. There is no assurance that such events, outlook and expectations will be achieved, and actual results may be significantly different than that shown here. The duration and characteristics of past market/economic cycles and market behavior, including any bull/bear markets, is no indication of the duration and characteristics of any current or future be market/economic cycles or behavior. Information on historical observations about asset or sub-asset classes is not intended to represent or predict future events. Historical trends do not imply, forecast or guarantee future results. Information is based on current views and market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.

Discussions of any specific sectors and companies are for informational purposes only. This material is not intended as a formal research report and should not be relied upon as a basis for making an investment decision. The firm, its employees and advisory accounts may hold positions of any companies discussed. Nothing herein constitutes a recommendation to buy, sell or hold a security. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. Investment decisions and the appropriateness of this content should be made based on an investor's individual objectives and circumstances and in consultation with his or her advisors.

Neuberger Berman Investment Advisers LLC is a registered investment adviser.

The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC.