The inflation report for November is like a macro bomb: the year-on-year increase in the Consumer Price Index (CPI) is only 2.7%, far below the previously expected 3.1%, indicating that the Federal Reserve's war on inflation is finally gaining the upper hand. The core inflation rate has also decreased, marking one of the lowest annual increases in six years.
This is important because the entire pricing system of stocks, bonds, foreign exchange, and even cryptocurrencies is based on expectations of future interest rates. The slowdown in inflation allows the Federal Reserve to more easily lower interest rates further in 2026. The market reacted quickly: the stock market climbed to a historic high, bond yields showed a traditional 'bull market tends to flatten' trend, and the foreign exchange rate against the dollar continued to weaken, reflecting market expectations for the Federal Reserve's future policies.
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