How Will November inflation-data">US CPI Data Influence the Fed’s January Rate Decision?

The November 2023 US Consumer Price Index (CPI) report was marked by significant data gaps, notably in energy and shelter categories, due to federal government furloughs and disruptions in data collection. This incomplete inflation reading complicates the Federal Reserve’s task of assessing inflation momentum ahead of its January 2024 policy meeting, raising questions about how policymakers will weigh this data alongside alternative inflation indicators.

What happened

In November 2023, the Bureau of Labor Statistics (BLS) released the CPI report showing a headline monthly increase of 0.3% and a 0.2% rise in core CPI, which excludes food and energy. However, the report was unusual because several CPI subcomponents—particularly in the energy and shelter segments—were incomplete or delayed. These gaps were explicitly attributed by the BLS to federal government furloughs and disruptions in data gathering processes during that period.

This partial data release introduced uncertainty into the inflation reading. The BLS confirmed that the missing subcomponents affected the overall inflation calculation, although it did not provide a full reconciliation or revised CPI figures to fill these gaps at the time of release. Consequently, the headline and core CPI figures may not fully capture the actual inflationary pressures in the economy for November.

Federal Reserve officials have publicly acknowledged these data limitations. According to reporting by Reuters, Fed policymakers expressed caution about interpreting the November CPI data, noting that the gaps make it more difficult to accurately gauge the current inflation trajectory. As a result, the Fed is increasingly looking toward other inflation measures, such as the Personal Consumption Expenditures (PCE) price index, producer price index (PPI), and private sector inflation surveys, to supplement the incomplete CPI data.

Media outlets including BeinCrypto and Bloomberg have interpreted these developments as injecting uncertainty into the Fed’s inflation outlook. Analysts point out that the November CPI gaps could either obscure persistent inflationary pressures or give a misleading impression of faster cooling. These interpretations reflect the broader challenge facing policymakers as they prepare for the January Federal Open Market Committee (FOMC) meeting.

Why this matters

The CPI report is one of the most closely watched inflation indicators in the US and plays a critical role in shaping Federal Reserve monetary policy decisions. Inflation readings influence whether the Fed continues to raise interest rates, holds steady, or signals a shift toward easing. Incomplete or unreliable CPI data complicates this decision-making process, as policymakers rely on accurate and timely information to balance inflation control with economic growth.

The November data gaps weaken the clarity of the inflation signal at a time when the Fed is navigating a complex economic environment. Without a full picture from the CPI, there is a risk that policymakers may misjudge the underlying inflation momentum. This uncertainty has broader market implications, potentially affecting bond yields, equity valuations, and expectations for future rate hikes.

Moreover, the reliance on alternative inflation measures—such as the PCE index, which is the Fed’s preferred gauge, and private inflation surveys—reflects an adaptive approach by policymakers. However, these substitutes have limitations. The PCE index is released with a lag and may not capture near-term inflation dynamics, while private surveys can be influenced by short-term sentiment and may not align perfectly with official government data.

In this context, the November CPI data gaps underscore the fragility of inflation measurement during periods of data disruption and highlight the challenges faced by central banks in maintaining policy transparency and credibility.

What remains unclear

Despite the confirmed existence of data gaps, several key questions remain unanswered. First, it is not yet known to what extent the missing CPI subcomponents will be revised or supplemented in future BLS releases, or how such revisions might alter the inflation trend picture for November and subsequent months.

Second, the degree to which the Federal Reserve will prioritize alternative inflation indicators over the incomplete CPI data in its January rate decision is not explicitly stated by Fed officials. There is no direct official guidance on how much weight will be given to these supplementary measures versus the headline CPI figures.

Third, while some analysts and media reports mention broader economic data such as wage growth and commodity prices as potential inflation signals, the Research Brief does not provide detailed information on whether these indicators currently point to a clearer inflation trajectory amid the CPI uncertainties.

Finally, the limitations of alternative inflation gauges—including their methodological differences and timing lags—mean that they cannot fully replace the CPI as a real-time inflation barometer. This leaves a persistent degree of ambiguity around the true state of inflation heading into the January FOMC meeting.

What to watch next

The Bureau of Labor Statistics’ forthcoming updates or revisions to the November CPI report, which may clarify the extent of missing data and adjust inflation readings accordingly.
The January Federal Open Market Committee meeting statement and minutes, which may provide insight into how the Fed is interpreting the incomplete CPI data alongside alternative inflation measures.
Upcoming releases of the Personal Consumption Expenditures (PCE) price index and producer price index (PPI), which policymakers are increasingly referencing to supplement CPI data.
Private sector inflation surveys and market-based inflation expectations, which may offer additional context on inflation sentiment and expectations despite their limitations.
Broader economic indicators such as wage growth figures and commodity price trends that could help fill gaps in understanding inflation momentum beyond the CPI.

The unusual November CPI data gaps present a clear challenge for the Federal Reserve as it evaluates inflation trends and determines its policy stance for early 2024. While alternative inflation measures provide some compensation for missing data, uncertainties remain about how these will influence the Fed’s January rate decision. The situation highlights the importance of forthcoming data revisions and policy communications in reducing ambiguity for markets and observers alike.

Source: https://beincrypto.com/us-cpi-focus-weigh-feds-january-rate-outlook/. This article is based on verified research material available at the time of writing. Where information is limited or unavailable, this is stated explicitly.