Core US Inflation Cools to 2.6%, Fueling Hopes of a Late-Year Market Rally

Core US inflation showed further signs of easing in November, coming in at 2.6%, notably below the market expectation of 3.0%. The data, which excludes volatile food and energy prices, has been welcomed by investors as fresh evidence that inflationary pressures in the world’s largest economy continue to moderate.

The softer-than-expected reading has strengthened optimism that the Federal Reserve’s aggressive tightening cycle is having its intended effect without pushing the economy into a sharp downturn. For months, policymakers have stressed that progress on inflation would guide future interest rate decisions, and November’s figure suggests that price stability may be coming back into clearer view.

Markets reacted positively to the news, with equities finding renewed momentum and bond yields edging lower. Investors are increasingly pricing in the possibility that the Fed could shift toward a more accommodative stance in 2026 if inflation continues on its downward trajectory. While officials have not signaled imminent rate cuts, the latest data reduces pressure for further rate hikes in the near term.

The timing of the inflation surprise has added to seasonal optimism across financial markets. Historically, equities often experience a so-called “Santa Rally” during the final weeks of December, driven by lighter trading volumes, portfolio rebalancing, and improved investor sentiment. This year, cooling inflation has become an additional catalyst, encouraging risk-taking as the year draws to a close.

Currency markets also reflected the shift in expectations. The US dollar softened modestly against major peers as traders reassessed the outlook for US interest rates. Meanwhile, commodities and emerging market assets benefited from the prospect of a less restrictive monetary environment heading into the new year.

Despite the positive reaction, analysts caution that one data point does not guarantee a smooth path ahead. Services inflation remains sticky, and wage growth continues to be closely monitored by policymakers. Geopolitical risks and global supply chain dynamics also have the potential to disrupt the inflation narrative.

Nevertheless, November’s core inflation reading reinforces the view that the US economy may be achieving a rare balance between slowing price growth and steady economic activity. If upcoming data confirms this trend, markets could enter the new year with a more constructive outlook, supported by easing financial conditions and improved confidence.

For now, investors appear content to embrace the festive mood, with hopes that moderating inflation will help deliver a late-year rally and set a more stable foundation for 2026.