“We believe the Federal Reserve will weigh the inflation numbers in the context of the weakening labour markets. We expect the Fed to continue to ease monetary policy.”
- While inflation for September was above market expectations, one data point doesn’t make a long-term trend.
- The latest number only reiterates our views of the challenges the Fed may face in taming last-mile of inflation.
- An outlook with Central Banks moving to cut rates is supportive for the fixed income asset class.
US consumer price inflation (CPI) rose above market expectations, underlining the pitfalls of assuming that inflation is completely dead. In particular, growth in the core CPI (CPI-excluding food and energy) accelerated to 3.3%. Having said that, the data is in line with our view of a gradual decline in inflation and an overall trend of a lower trajectory. But, as we have mentioned earlier, volatility around inflation numbers is likely to continue. From a monetary policy perspective, we maintain that the Fed will not look at these latest numbers in isolation. The trend still shows steady progress in controlling price increases. At the other end, the central bank will be mindful of any deterioration in labour markets and hence on economic growth. Our stance remains that the Fed is likely to continue to reduce rates, with an eye on incoming data.
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