US Inflation Nears the Finish Line, but Questions Remain

Inflation in the United States appears to be cooling and edging closer to the Federal Reserve’s long-standing target, according to the latest consumer price data. After running hotter through late summer, price pressures eased noticeably in the early fall, offering tentative relief to policymakers, markets, and households alike. Still, gaps in the data and methodological caveats suggest caution before declaring victory.
The most recent inflation figures showed prices rising less than expected in November. Over the two-month period from September to November, the consumer price index increased at a slower pace than earlier in the year, marking a clear deceleration from late-summer momentum. On an annual basis, headline inflation fell to the high-2 percent range, down from around 3 percent just two months earlier. Core inflation, which strips out volatile food and energy components, followed a similar path, easing into the mid-2 percent range on a year-over-year basis.
Energy prices played a central role in this slowdown. After months of volatility, energy costs stabilized and rose only modestly, removing a major source of upward pressure on overall inflation. Food prices increased slightly, while categories such as household goods, communications, and personal care recorded mild gains. At the same time, several discretionary sectors—including lodging, recreation, and apparel—saw outright price declines, further contributing to the softer inflation profile.

Taken together, these movements suggest that inflation late in the period was running close to a 2 percent annualized pace. That marks a sharp contrast with the July–September window, when monthly price increases implied an annual rate well above target, even though year-over-year figures at the time appeared more benign. The latest data therefore point to a meaningful shift in momentum rather than a cosmetic improvement driven solely by base effects.

Trade policy has remained a lingering concern for inflation watchers, as tariffs have added to costs across parts of the economy. However, their impact now appears to be fading. This aligns with the Federal Reserve’s view, articulated by Chair Jerome Powell, that tariffs are more likely to cause a one-time adjustment in price levels rather than sustained inflation. If that assessment holds, tariffs may no longer be a major obstacle to restoring price stability.

Despite the encouraging trend, the data come with important caveats. The November inflation report relied on certain assumptions to compensate for missing information from October, when government operations were disrupted. That raises the possibility that measured inflation was temporarily understated. If so, part of the apparent cooling could reflect statistical distortion rather than a genuine easing in underlying price pressures. Upcoming releases will be critical in confirming whether the slowdown is durable.

From a policy perspective, consumer price data still matter, even though the Federal Reserve formally targets inflation measured by the personal consumption expenditures price index. Historically, the two indicators move closely together, with consumer prices tending to run slightly higher. As a result, a moderation in consumer inflation typically signals a similar trend in the Fed’s preferred gauge, albeit at a somewhat lower level.

Financial markets have responded positively to the latest numbers. Equity prices rose and bond yields declined following the release, reflecting growing confidence that inflation is no longer accelerating. Expectations for interest rate policy have also shifted subtly. While markets largely anticipate that the Federal Reserve will hold rates steady in the near term, the perceived likelihood of future rate cuts has increased modestly. That shift is consistent with the idea that inflation is converging toward target and that monetary policy may be close to a neutral stance.

Still, policymakers are unlikely to rely on a single report, especially one clouded by data gaps. The next readings on consumer prices and personal consumption expenditures inflation will help determine whether the recent slowdown represents a true change in trajectory or a temporary statistical artifact. Only sustained evidence of inflation settling near 2 percent will provide the confidence needed to adjust policy decisively.

For now, the direction of travel is encouraging. After several years of stubbornly elevated inflation, price growth appears to be easing and moving closer to the Federal Reserve’s goal. Whether that progress holds will become clearer in the months ahead, as more complete data either confirm the trend—or call it into question once again.