Wall Street comments on November CPI: The data is clearly skewed, and the Federal Reserve is unlikely to shift its policy because of it.

Although the U.S. November CPI data showed further cooling of inflation, major Wall Street investment banks warn that the data is heavily affected by technical distortions and statistical biases, making it difficult to accurately reflect price trends. Institutions including Barclays and Morgan Stanley believe this “noisy” report is insufficient to push the Federal Reserve to change its policy stance in the short term.

According to news from Trading Desk, the U.S. core CPI for November recorded only a 0.16% increase (based on the two-month change from September to November), with year-on-year growth dropping to 2.6%, significantly lower than the market expectation of 3.0%. The Morgan Stanley team led by Michael T Gapen also showed that the average monthly core CPI increase for October and November was only 0.08%, much lower than the previous forecast of 0.28%.

Despite the weak headline numbers, analysts believe the inflation values were artificially suppressed due to the timing window for data collection and how missing data was handled. The Barclays team led by economist Pooja Sriram estimates that, because price sampling concentrated during the "Black Friday" sales period and issues with the calculation method for housing rents, the actual November core CPI reading may have a downward bias of around 20-25 basis points.

Given all the measurement issues with the data, Wall Street generally believes the Fed will not overreact. Barclays believes the threshold for a change in policy consensus at the FOMC remains high, and policymakers are more likely to focus on the upcoming December jobs and inflation data, rather than this distorted report. The firm maintains its forecast that the Fed will cut rates in March and June of 2026, and sees a very low probability of a rate cut in January.

Data Distortion and Downward Bias

The biggest controversy with this CPI report is the technical interference in the data collection and processing process. Morgan Stanley bluntly stated in their report that this is “noisy” data, pointing out that the Bureau of Labor Statistics (BLS) may have used “carry forward” processing for some missing data categories, effectively assuming a 0% inflation rate and thus causing unexpectedly lower readings.

Barclays further breaks down the two main factors causing the bias. First is the timing of price collection. The report notes that, due to specific factors, price collection was restricted to the second half of November, coinciding with the "Black Friday" sales period. Historical data shows that import prices during sales tend to be around 1% lower than in the first half of the month. Barclays estimates this alone may have led to an underestimation of core CPI by 10-15 basis points.

Second is the absence of rental data. Due to the lack of rental and owners’ equivalent rent (OER) data for October, the statistics bureau may have assumed zero growth in rents during calculation. This “blank filling” statistically distorts the bimonthly data comparison and could have a lasting disruptive effect on subsequent calculations through April 2026.

Doubts over Soft Housing and Services Sectors

Category data show that the sharp drop in housing and service sector inflation is the key driver behind the overall data decline, but the reality of this trend is being questioned. According to Morgan Stanley, core service sector inflation was much lower than expected, mainly dragged down by unusually weak readings in primary residential rent and OER.

Barclays data shows rents in the report rose only 0.13%, and OER increased by 0.27% (bimonthly increase). This means the average monthly rent increase for October and November was just 6 basis points. Analysts are highly skeptical, saying even accounting for cooling market rents, this figure is well below a reasonable level, further supporting the view that the statistical methods led to a downward bias.

Additionally, core services excluding housing also performed weakly. Airline ticket prices dropped sharply by 6.6% over two months, and medical insurance services fell by 2.9%. Morgan Stanley notes that if this slowdown in medical insurance CPI continues, it may imply that this segment will face more than 1 basis point of downward pressure each month until April next year.

Policy Threshold Not Triggered

Although the inflation data appears to provide grounds for rate cuts, Wall Street analysts warn investors not to overinterpret it. Barclays takes a cautious stance, believing the report cannot deliver a clear inflation path signal to the FOMC due to the multitude of measurement issues.

Barclays emphasizes in its research that the threshold for a rate cut at the Fed's January 28 meeting is very high. Undecided voting members will focus their attention on the jobs and inflation data for December, scheduled for release in January, to seek more reliable economic signals.

Based on its assessment of “data noise,” Barclays maintains its baseline forecast that the Fed will cut rates twice in 2026, in March and June, and then hold rates steady until the end of 2027. While Morgan Stanley has lowered its short-term inflation forecasts, it also warns that if technical factors are the main reason for the current softness, December inflation data may show a renewed acceleration.

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