US: Stalling disinflation. Latest price data from the US show stalling pace of disinflation. From early-2023 to mid-2024, core PCE inflation eased steadily from around 5% to below 3%. Since then, it has hovered at 2.75%. More broadly, surveys of business owners in manufacturing and services sectors with national and regional footprints point to costs bottoming out and a marginal increase in plans to raise prices. These findings will be a source of discomfort for Fed officials as they gather during 17-18 December.
Fed Chair Jerome Powell reckoned the Fed could afford to be a little more cautious in lowering rates towards neutral. His confidence in the US economy was consistent with the Fed’s Beige Book which reported that economic activity rose slightly in most areas. While it wants more clarity on US President-elect Donald Trump’s actual tariff and immigration policies, the Fed noted that businesses were concerned about the impact of tariffs on inflation after Trump assumes office in January. US ISM Services fell to 52.1 in November, taking a breather after increasing for four months in a row to 56 in October from 48.8 in June.
Overall, the market is hesitant in adopting a strong stance on Fed cuts beyond the one currently projected for the Federal Open Market Committee meeting on 18 Dec. Tonight, consensus expects US nonfarm payrolls to rebound to 215k in November; markets had brushed off October’s decline to 12k as a distortion due to the hurricanes and strikes. The unemployment rate is expected to stay unchanged at 4.1% for a third month. The Fed enters a blackout period next week, during which CPI inflation is expected to remain unchanged for a fifth time at 0.2% m/m in November, and excluding food and energy prices, a fourth month at 0.3% m/m.
Figure 1: Disinflation in the US has slowed
Source: LSEG Datastream, DBS
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