NY Fed Williams' CPI Distortion Comments and Market Reaction on December 19, 2025

This analysis is based on the CNBC report [1] published on December 19, 2025, regarding NY Fed President John Williams’ comments on November’s CPI data. According to Williams, the November CPI reading was distorted downward by technical factors resulting from a 43-day government shutdown, which prevented the BLS from collecting data in October and the first half of November. The remaining data was collected in the second half of November, a period with widespread sales, and there were additional complications with rent and other categories. Williams estimated the distortion pushed down CPI by about 0.1% [1].

November’s CPI data showed headline inflation at 2.7% YoY (down from 3% in September) and core inflation at 2.6% YoY (down from 3% in September), both figures coming in below market expectations of 3.1% and 3.0% respectively [0]. On the day of Williams’ comments, major U.S. stock indices rose: the S&P 500 (SPY) gained 0.59%, the Dow Jones (DIA) rose 0.11%, and the Nasdaq (QQQ) outperformed with a 0.83% increase [0].

Investors interpreted Williams’ comments as dovish despite the mention of CPI distortion. This reaction stemmed from three key factors: 1) Williams did not indicate a need for tighter monetary policy, 2) the estimated distortion of 0.1% was relatively small and insufficient to alter the broader narrative of cooling inflation, and 3) the underlying trend of inflation moving toward the Fed’s 2% target remained intact [0].

1. Market Sentiment Over Literal Content
   : Short-term market movements were driven by the dovish interpretation of Williams’ comments rather than the literal mention of CPI distortion. This highlights the importance of how central bank communications are framed and perceived by investors.
2. Technical Noise vs. Broader Trend
   : While technical factors created temporary noise in the CPI data, the underlying trend of cooling inflation remains a dominant market driver. Investors focused on the Fed’s continued recognition of improving inflation conditions rather than the one-tenth of a percent distortion.
3. Interest-Sensitive Sector Outperformance
   : The Nasdaq’s stronger performance (0.83% vs. SPY’s 0.59% and DIA’s 0.11%) suggests that interest-sensitive sectors like technology and real estate benefited most from the dovish interpretation, as lower inflation expectations support longer-duration assets.

• Revised CPI Data
  : If future revisions to the November CPI data show a larger-than-estimated distortion, it could lead to market volatility as investors reassess inflation expectations.
• Fed Policy Adjustments
  : If inflation shows signs of rebounding beyond the temporary distortion, the Fed may delay or scale back expected rate cuts, potentially pressuring risk assets.

• Cooling Inflation Trend
  : The broader trend of inflation moving toward the Fed’s 2% target continues to support positive market sentiment and risk asset performance.
• Rate Cut Expectations
  : As long as inflation remains on its current trajectory, market expectations for future rate cuts are likely to remain intact, providing a tailwind for equities.

• November CPI Data
  : 2.7% YoY (headline), 2.6% YoY (core) [0]
• Distortion Estimate
  : Williams stated technical factors likely pushed CPI down by ~0.1% [1]
• December 19, 2025 Market Reaction
  : SPY +0.59%, DIA +0.11%, QQQ +0.83% [0]
• Investor Interpretation
  : Comments were viewed as dovish, with no signal of tighter monetary policy [0]
• Key Drivers
  : Cooling inflation trend, small estimated distortion, and Fed’s continued recognition of improving inflation conditions [0]