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US inflation came in at 7.1% over the 12 months to the end of November, dropping from 7.7% in October, lower than the expected 7.1%. The change was driven largely by a fall in the costs of energy, used cars and medical care. However, although the overall picture may be improving, the costs of some goods, such as housing and food, continue to rise.

US stocks rallied following inflation figures earlier in the week, supported by Powell’s statements earlier this month regarding slowing of rate hikes. Last week saw a number of key interest rate decisions being released. The US, alongside the UK and EU, adopted a 50 basis point rise, and many believe we are approaching a slowdown in rate hikes or even a plateau in those rates. Markets tumbled following the rate hikes, as investors had hoped that the Fed would ease up on its aggressive interest rate trajectory.

The EU also opted for a smaller rate hike on Thursday of only 50 bps, following two 75 bps rises earlier in the year. They stated however, that they would need to raise rates ‘significantly’ further to tame inflation, contrasting the messages we have seen from the Fed this month. They also announced plans beginning March 2023 to begin reducing its balance sheet by 15 billion euros per month on average, lasting through to the 3rd quarter of 2023.