Fed Easing Stays on Track
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Economics Research11 Oct 2024
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US: Inflation slows less than expected. Following the stronger-than-expected US jobs data last Friday, the futures market rescinded its bet for a second 50 bps rate cut at the next Federal Open Market Committee (FOMC) meeting on 7 Nov, opting instead for a reduction of 25 bps. The September FOMC minutes released this week showed there was a preference among some officials to cut rates at a more gradual pace, possibly because the economy remains remarkably resilient even in the face of what Fed officials call a “restrictive” policy.

Underlying inflation rose more than forecast in September, signalling a pause in recent progress toward moderating price pressures. The US consumer price index (CPI) rose 2.4% y/y, down from 2.5% in August, marginally above consensus estimates of 2.3%. That said, consumer prices registered the smallest annual rise since Feb 2021. US core CPI, which excludes food and energy costs, increased 3.3% on a y/y basis, compared to expectations of 3.2%.

We believe Fed officials will not read too much into one month’s worth of data and will most likely maintain the path of reducing monetary policy restrictions. Fed officials have played down the data and stuck with the narrative that the US economy and labour market are in a better balance today, compared to two years ago, increasing confidence for inflation to return to the 2% target in 2025 and the plan to lower rates towards neutral.

Figure 1: The Fed will not read too much into one month’s worth of data
Source: Bloomberg, DBS




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