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Before they even had their morning coffee, Wall Street economists were saying they don’t trust November’s consumer inflation report that was released earlier today.
That is reportedly because it was built on shaky ground, as the government shutdown blocked real data collection for six straight weeks, forcing the Bureau of Labor Statistics to guess its way through large parts of the consumer price index.
Cryptopolitan reported that the headline number came in at 2.7%, far below the 3.1% forecast and below September’s 3% rise. Core inflation rose 2.6%, also weaker than the expected 3%, setting off a debate over whether these numbers reflect the real economy or just the consequences of a statistical patch job.
Economists pointed out that the BLS had no choice but to throw out the October report entirely because it had almost no usable survey data, leading the agency to “impute” many prices.
This process replaces missing survey results with estimates, and it dominated the November report. The BLS said it even used nonsurvey data for some parts of the index.
In recent months, the agency had been imputing more often anyway due to budget cuts that hurt its field operations. In September, imputed values made up as much as 40% of the CPI inputs. The agency did not reveal the November share.
Economists question data after shutdown limits real collection
Michael Hanson at JPMorgan said the softer readings “suggest that the BLS may have held fixed a number of prices it was not able to collect in October, which likely means a material downward bias in the current numbers that will be reversed in coming months as full price collection resumes.”
Diane Swonk at KPMG US warned that “because it was a shortened survey month, you’ve got to take it with a grain of salt.” She said, “Things that should be going up are going down, and things that should be going down are going up. So it’s confusing, and it doesn’t quite square with prices that we’ve observed.”
Markets reacted with their usual mood swings. Yields on short-term government debt dipped after the report, which pushed prices higher, but the move faded fast. The two-year Treasury yield touched a two-month low of 3.43% before snapping back.
Stocks, on the other hand, opened strong. The S&P 500 rose 0.9% and the Nasdaq jumped 2.4%. But traders did not fully trust the numbers. Jon Hill at Barclays said, “Markets don’t care because the data doesn’t pass the smell test.”
He added, “Given the lack of explanation about how the BLS made these decisions, it’s hard to take at face value. Because it was such a big miss, and because it’s so hard for the market to take the data literally, investors don’t want to bet the house.”
Political pressure builds as Fed officials debate next rate move
The stubborn path of inflation in recent months had already become a political headache for President Donald Trump. Voters have been frustrated by the squeeze on living costs. So the White House jumped on the softer report.
Kevin Hassett, now leading the National Economic Council and seen as a top contender to run the Federal Reserve, said, “I’m not saying that we are going to declare victory yet on the price problem, but this is just an astonishingly good CPI report.”
Trump used the moment to push again for faster rate cuts and kept attacking Fed chair Jay Powell, calling him a “moron” over what he sees as slow action. But analysts said the questionable data may not sway the central bank much.
The Fed voted last week to cut borrowing costs to a three-year low after a tense meeting. Some policymakers said faster cuts risk fueling inflation, while others argued weak labor conditions justified more support.
Kansas City Fed chief Jeff Schmid and Chicago Fed head Austan Goolsbee warned against easing too much because of inflation risks. Fed governor Stephen Miran pushed for a 0.5-point cut instead, saying “phantom inflation” was steering the Fed in the wrong direction and that the real underlying rate was far lower.
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