UBS says the Federal Reserve stays on monitor to chop charges (shrugs off larger CPI knowledge)

From a UBS observe on thier outlook for the Federal Open Market Committee (FOMC). UBS notes that final week’s hotter-than-expected US inflation print has markets rethinking Fed fee reduce bets:

• Core CPI got here in at zero.three% m/m for the second straight month, topping estimates and pushing the y/y fee to three.three%.
• The info, coupled with latest sturdy jobs numbers, has merchants slashing odds of aggressive easing. CME FedWatch now exhibits zero likelihood of a 50bp reduce, down from 35% final week. Odds of no reduce have jumped to 15% from zilch.

However, say the analysts, do not throw within the towel on 2024 cuts simply but.

• General inflation developments stay downward regardless of month-to-month noise. Headline CPI eased to 2.four%, lowest since 2021. Shelter prices moderated considerably. And bear in mind, August CPI additionally dissatisfied earlier than PCE got here in softer.

On the Federal Reserve UBS says that officers aren’t sweating particular person prints both:

• NY Fed’s Williams famous the regular downtrend in inflation.
• Chicago’s Goolsbee and Richmond’s Barkin echoed related sentiments.
• FOMC minutes present policymakers eyeing a transfer towards impartial over time, assuming knowledge cooperates. They see present coverage as restrictive and acknowledge the necessity to normalize finally.

The ‘backside line’ is that whereas fee reduce timing could shift, the easing bias stays intact.

What to look at – markets might be on excessive alert for upcoming PCE knowledge to verify or problem the CPI shock.

(As a heads up, the following Private Consumption Expenditures (PCE) report, which incorporates knowledge for September 2024, is scheduled for launch on October 31, 2024. )

This text was written by Aaron Cutchburt at www.ubaidahsan.com.



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