Last week’s long-awaited inflation and U.S. labor data didn’t look as bad at first glance, raising questions about whether the Fed is being too hawkish. A closer look, however, tells a different story, even as the S&P 500 regained a positive tone and the dollar index edged lower toward the 98 level.
Starting with inflation, the October–November report showed annual inflation at 2.7% year-over-year, which is below the expected 3.1%. The Core CPI also surprised on the downside, coming in at 2.6% versus a forecast of 3.0%. However, this result reflects technical factors rather than evidence that tariffs are not inflationary.
In particular, due to the longest government shutdown in U.S. history, data collection was effectively limited to the second half of November. To be more precise, collection resumed on the 14th, and for some indices, the Bureau of Labor Statistics (BLS) had to rely on non-survey data sources to produce estimates.
Therefore, questions remain about the reliability of these figures. For more accurate readings, we will have to wait for the December report, which is expected to be released in January. However, after that, further gaps may arise, as the current bipartisan funding agreement only extends the government's operation until January 30, 2026.
There are also some puzzling blanks in last week’s inflation report. For instance, as KPMG noted, shelter costs — which make up nearly a third of the CPI — were zeroed out in October. That alone could have dragged down the core index.
It’s no wonder that after the CPI release, the market’s expectations for 2026 rate cuts barely shifted, and long-term Treasury yields mainly remained unchanged. According to the CME Fed Watch Tool, the baseline market view is still for two rate cuts by the end of the year.
The labor market picture is just as murky. In October, the U.S. lost 105,000 jobs — but this decline was entirely in the public sector, primarily due to the shutdown. In the private sector, on average, approximately 72,000 jobs were added per month over the past three months. That’s modest, but better than the previous slump.
Overall, the trend suggests a slowdown in job growth, despite an increase in vacancies in recent months.
So why did gold surge above $4,400 an ounce?
It seems the reason isn’t so much hope for a more dovish Fed. Instead, demand for the precious metal continues to rise, fueled by countries — including China — reducing their dollar reserves. Additionally, concerns that the U.S. might launch operations against Venezuela could also be contributing to the rally.