A monthly US inflation report from the government is expected to reveal a sluggish advancement in consumer prices and is scheduled to be released on Tuesday.
This US inflation report will indicate a slower approach to reaching the Federal Reserve’s 2% inflation goal.
As reported by Bloomberg Economics, this situation will likely maintain the central bank’s inclination for increased economic control.
October CPI is expected to be steady
Expected data reveals that, in October, the consumer price index, excluding food and energy, increased by 0.3% for the second consecutive month.
According to economists Anna Wong and Stuart Paul from Bloomberg, this resulted in the year-over-year rate remaining steady at 4.1%.
Despite promising advancements observed during the summer, the slowdown in the year-over-year core Consumer Price Index (CPI) is expected to have halted.
According to economists Wong and Paul, the monthly pace has gradually increased. Thus indicating a trend more aligned with an annualized inflation rate of 3%-4% rather than the targeted 2%.
It’s probable that officials will keep the door open for potential future hikes in interest rates, especially if the core Consumer Price Index continues to maintain its current monthly growth rate.
Concerns linger for further rate hikes
Throughout this year, inflation has declined after reaching its peak in 2022, marking the highest levels seen since the early 1980s.
The positive trend in consumer price data over the past few months has contributed to a widely shared agreement for a pause in the Federal Reserve’s tightening efforts at the last two policy meetings.
If progress toward the 2% inflation target continues to be slow, there’s a growing concern that additional interest-rate hikes might become necessary. However, the central bank’s benchmark rate is already at a 22-year high.
Investors currently estimate about a one-in-four chance of another rate hike happening in either of the two next policy meetings, as indicated by futures markets.
Even though the slowdown in core Consumer Price Index (CPI) has come to a halt, the Federal Reserve is expected to maintain its cautious approach toward rate hikes.
Economists Wong and Paul suggest that this stance is unlikely to change, especially with the anticipation of upcoming months offering further evidence of a more rapid cooling in the labor market.
These projections also align with the middle responses in a survey of external forecasters conducted by Bloomberg.
Decline in inflation rates anticipated in the US inflation report
For the upcoming US inflation report, analysts at Bank of America anticipate a reduction in the headline rate, mainly influenced by a decline in gasoline prices.
The core inflation, excluding volatile food and energy prices, is predicted to decrease to 0.1% month-on-month, down from September’s 0.4%.
Indications of inflation being more enduring than anticipated could disrupt the prevalent belief that the Federal Reserve has concluded its campaign of raising interest rates.
Following the recent policy meeting, Powell mentioned that the Fed would approach future interest rate decisions “carefully.”
The market interpreted this statement as a potential indication that the Fed might have concluded its rate-raising actions.
Before this US inflation report, Powell cautioned against potential deception from favorable price data.
Swaps markets indicate a 90% likelihood that the Fed will maintain current rates at the next meeting, with the first reduction nearly fully anticipated by next June.
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