If another Federal Reserve decision on interest rates is the main course on this week’s menu of economic news, Tuesday’s inflation report will almost certainly set the table.

Investors are hoping that a second straight tame report on the consumer price index (CPI) will increase the Fed’s comfort level with holding rates steady after a two-day meeting Wednesday – an outcome that’s virtually certain.

Markets would also love to see inflation data that helps coax officials to speed up anticipated interest rate cuts in its forecast for next year. The prospect of accelerated rate cuts – which typically make stocks more attractive than bonds -- already has sparked a torrid market rally the past six weeks.

Yet that may be a tall order.

Live updates: Inflation hovered near 3% in November, forecasts say. Are more interest rate hikes coming?

While Tuesday’s CPI report is likely to show that overall inflation drifted down further in November, an underlying measure that the Fed watches more closely likely ticked up again, economists say. That probably wouldn’t spur the Fed to raise rates but it could lead officials to at least keep that option open and push back on the idea that rate cuts will be moved up, forecasters say.

“We think this makes it more likely that the tightening bias in the (Fed) statement (the message that the Fed is prepared to hike again if needed) will be maintained,” Barclays wrote in a research note.

Other economic reports last week could also affect the Fed’s outlook Wednesday. Consumer inflation expectations fell sharply this month, which should help keep prices in check. And the job market generally continued to cool in November, though the unemployment rate declined.

Has U.S. inflation eased?

Inflation has slowed significantly since hitting a 40-year high of 9.1% in June 2022 amid COVID-related product shortages and consumer demand surges. But, at 3.2%, it’s still well above the Fed’s 2% target.

To help corral soaring prices, the Fed has lifted its key interest rate from near zero early last year to a 22-year high of 5.25% to 5.5%. But Fed officials have put hikes on hold since July, and with inflation and the job market both cooling, most economists think the central bank is done raising rates.

Last month, CPI data revealed that annual inflation eased substantially in October from 3.7% to 3.2%. A core measure that strips out volatile food and energy items also dipped to 4% from 4.1%. That has helped stir hopes of Fed rate cuts and ignited stocks.

Is inflation expected to go down?

The November CPI report is expected to show that consumer prices were roughly flat on a monthly basis for a second straight month, lowering the annual gain to 3.1%, according to Barclays and Nomura. The drop likely was driven by another decline in gasoline prices and a modest uptick in food costs, the two research firms say.