• US rate futures now price in 62 basis points of Federal Reserve interest rate cuts for 2026 following softer-than-expected November 2025 CPI data.
  • The November CPI showed a modest 0.2% rise over the prior two months, with 12-month all-items inflation at 2.7% and core CPI at 2.6%.
  • This repricing reflects market optimism for further monetary easing amid disinflation, building on Fed cuts in September, October, and December 2025 that brought the federal funds rate to 3.5%-3.75%.

Futures markets have aggressively repriced expectations for Federal Reserve policy, with rate futures now indicating 62 basis points of easing in 2026 after today's release of November 2025 CPI data came in cooler than anticipated. According to people familiar with market positioning, the shift from prior levels signals growing confidence that the disinflation trend will allow the central bank to continue cutting interest rates next year.

The November CPI report showed a 0.2% increase over the prior two months on a seasonally adjusted basis, with the 12-month all-items reading at 2.7% and core CPI—excluding volatile food and energy components—at 2.6%. This marks a continued moderation from earlier in the year, supporting the Fed's dual mandate of price stability and maximum employment. "The data reinforces the narrative that inflation is moving sustainably toward the 2% target," said one market strategist who requested anonymity to discuss trading positions. "Markets are pricing in what the Fed might deliver if this trajectory holds."

Efforts to maintain a steady disinflation path have gained momentum with the latest numbers. The Fed's December projections already showed PCE inflation—the central bank's preferred gauge—at 2.9% for 2025, down from 3.0% previously, and 2.4% for 2026. Alongside upgraded GDP growth forecasts to 1.7% for 2025 and 2.3% for 2026, these revisions provided a backdrop for today's futures move. Market participants note that cooling energy prices, with gasoline up just 0.9% yearly, and shelter costs at 3.0% have contributed to the softer inflation environment, even as the labor market remains resilient with unemployment projected at 4.5% for 2025.

Without further progress on inflation, the Fed might pause its easing cycle, but today's data suggests room for additional cuts. The December FOMC meeting saw three dissenters against the 25 basis point reduction, echoing tensions from the 2019 easing cycle, and highlighting ongoing debates within the committee. Still, 12 of 19 participants in the latest dot plot see the funds rate stabilizing near 3% in the longer run, with balanced growth prospects but persistent core pressures. "We're in a delicate phase where each data point can shift expectations significantly," an analyst commented, pointing to how prior CPI releases, like October's energy spike, had tempered easing bets before today's shift.

Looking ahead, markets are eyeing potential for 1-2 more 25 basis point cuts in the first half of 2026 if inflation trends hold. Broader implications include benefits for borrowers through lower mortgage and auto loan rates, easing cost-of-living strains on households, and reduced borrowing costs for businesses. However, retirees and savers may face mixed effects on yields, with limited public reaction so far beyond market commentary. Globally, US easing could influence capital flows to emerging markets, though no specific international tensions have emerged yet.

In a brief update, attempts to reach Fed officials for comment on the futures repricing were unsuccessful, but sources indicate the central bank is closely monitoring market reactions as it assesses future policy moves.