Wells Fargo is dialling back the dovishness in the wake of solid inflation reports out of the US on Wednesday and Thursday.
Before I get to Wells Fargo, check out this clear-eyed view of inflation developments in the US:
I posted yesterday similar, but thought it was just me:
PPI data higher too:
Anyway, some snippets from Wells Fargo, separate reports conveying the same message. Analysts there are becoming a little wary:
- inflation data probably do not represent a sea change in the outlook for the Federal Reserve. Over the course of 2024, inflation has continued to slow, albeit more gradually than many had hoped it would at the start of the year
- We believe the FOMC will continue to reduce the federal funds rate next year in an effort to move monetary policy to a less restrictive position. We look for 100 bps of rate cuts from the FOMC over the next 12 months, with 25 bps rate cuts at next week's FOMC meeting and the March, June and September meetings next year
- We expect the FOMC will reduce the federal funds rate by 25 bps at the conclusion of its upcoming meeting on December 18 while simultaneously emphasizing that future rate cuts will be slower-going and dependent on incoming data
- Fed policymakers have hinted that their base case remains a 25 bps cut for December. But, officials have also suggested that current policy is now at a place where further reductions could occur more slowly. Thus, we expect that after lowering the target range by 25 bps to 4.50%-4.75% in December, additional easing is likely to occur at an every-other-meeting pace
- We look for the median participant estimate of the fed funds rate at the end of 2025 to rise by 25 bps to 3.625%. However, we would not be shocked to see it increase 50 bps given the recent run of firm data and the possibility of some participants re-centering the risks to their forecasts in light of potential policy changes
