U.S. stocks rallied after the November CPI inflation report showed price pressures cooling more than expected, renewing investor optimism that inflation may be easing. The positive market reaction came despite growing concerns over the reliability of the data following the recent government shutdown, which disrupted several federal data collection processes.
New York Fed President John Williams cautioned that technical factors may have influenced the November CPI inflation report, raising questions about how accurately the data reflects underlying inflation trends. To assess the broader economic implications, LPL Financial Chief Economist Jeffrey Roach weighed in on what the latest figures may mean for markets and monetary policy.
Roach said inflation appears to be moving in the right direction but warned investors against placing too much weight on a single report. He attributed some of the volatility in the November CPI inflation report to shutdown-related disruptions and data inconsistencies. Even so, Roach expects inflation to continue easing, projecting a rate of roughly 2.5% by the end of 2026.
Market conditions remain complicated as year-end liquidity events approach. Roach noted that trading activity is being influenced by triple witching expiration and S&P quarterly index rebalancing, both of which can amplify short-term market swings. Against that backdrop, attention remains focused on the Federal Reserve’s next steps.
Roach expects at least two interest rate cuts in 2026, driven largely by a cooling labor market and a gradual rise in unemployment. He forecast economic growth between 2.1% and 2.2%, supported by falling inflation and improving productivity. Productivity gains, he said, could help offset weaker job growth while allowing inflation to continue moderating.
Global central banks are taking increasingly divergent paths, adding another layer of complexity for investors. The Bank of England recently cut interest rates following softer inflation data, while the European Central Bank held policy steady. Meanwhile, the Bank of Japan raised rates for the first time in more than three decades.
Roach highlighted Japan as a potential standout in 2026, citing rising wages and higher input costs as drivers of further rate hikes. These policy differences could lead to heightened volatility in currency and international equity markets, creating both risks and opportunities for investors.
Looking ahead, Roach outlined a constructive outlook for 2026. He projects economic growth of approximately 2.2%, supported by increased tax refunds, targeted fiscal measures, and resilient consumer spending. Based on current conditions, he does not expect the U.S. economy to slip into recession next year.
While the market rally following the November CPI inflation report reflects growing optimism, uncertainties remain. Data reliability, shifting central bank policies, and global economic divergence will continue to shape market conditions. Investors navigating 2026 will need to balance optimism with caution as inflation trends, interest rates, and productivity remain in focus.