Why Wall Street can't admit inflation is going down
Wall Street’s pushback against the latest inflation report underscores a deep-rooted narrative bias.
According to Wellington Altus chief market strategist James E. Thorne, many analysts are more focused on defending political or macro views than updating their outlook based on new data.
According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) for November showed prices rising 2.7% year-over-year, slower than economists had forecast and down from prior readings.
Core inflation also came in much softer than many expected.
Rather than viewing the cooler inflation numbers as a signal that price pressures may be easing, some market commentators were quick to dismiss the report as flawed, blaming measurement issues and lingering distortions tied to the prolonged government shutdown in the fall, which disrupted data collection.
Thorne said that the reaction is indicative of a broader problem.
“The usual commentators scrambled to preserve their pre-packaged ‘Trump is bad for inflation and deficits’ storyline even as the latest inflation print clearly moved the other way,” he wrote, adding that, “Rather than reassess their priors in light of cooler-than-narrated inflation […] they simply shifted the goalposts, leaning on vague long-term alarmism.”
The debate over the November CPI matters because inflation trends are central to expectations about interest rates, markets, and economic policy.
The gap between consensus forecasts and actual data highlights how quickly narratives can diverge from measurable outcomes.
Thorne’s critique underscores a basic point: consensus views often lag real-time developments, and unexamined biases can skew how markets interpret key indicators.
Why the November CPI sparked skepticism
While Thorne’s commentary is compelling in isolation, it does gloss over legitimate concerns surrounding the November CPI report.
Under normal circumstances, investors would welcome signs of moderating inflation after years of prices running above the Federal Reserve’s target. November’s report, however, stood out for unusual reasons.
As InvestorsObserver reported, several market commentators sharply criticized the data collection process, with one calling it “totally inexcusable.”
The criticism is mainly centered on the housing component of CPI — specifically, owners’ equivalent rent — which unexpectedly registered no monthly change, raising questions about the reliability of the broader inflation reading.
That uncertainty likely helps explain why traders have been reluctant to materially adjust expectations for near-term interest-rate cuts, which are closely tied to inflation trends.
According to the CME Group’s FedWatch tool, the probability of a January rate cut has fallen over the past week, dropping to roughly 22% as of Friday.
Markets, however, appear more receptive to the idea that easing inflation could translate into policy action later in the first quarter, with traders assigning slightly higher odds to a rate cut in March.