Welcome to the US CPI Day! Inflation is back at the top of market's focus after the Fed's 50 bps cut in September, the acceleration in the US data and Trump's victory.
If we look at the markets, there's been already some pre-positioning/hedging into a potentially higher than expected CPI print, so there's some risk of a "sell the fact" reaction. Of course, a bigger than expected upside surprise would be much more straightforward.
The market is currently pricing a 63% chance of a 25 bps cut in December and basically two more 25 bps rate cuts in 2025 which is already much less than the four projected by the Fed in September.
13:30 GMT/08:30 ET - US October CPI
The US CPI Y/Y is expected at 2.6% vs. 2.4% prior, while the M/M measure is seen at 0.2% vs. 0.2% prior. The Core CPI Y/Y is expected at 3.3% vs. 3.3% prior, while the M/M figure is seen at 0.3% vs. 0.3% prior.
At the latest Fed’s decision, Fed Chair Powell said that they expect bumps on inflation and that one or two bad data months on inflation won’t change the process. This keeps the 25 bps cut in December in place even if we get higher inflation readings.
The market though is forward-looking, and the rise in Treasury yields showed that the market sees risks to the inflation outlook. Moreover, the red sweep could increase those fears if the progress on inflation stalls, or worse, reverses.
Therefore, higher inflation readings might not change the near-term monetary policy outlook, but I personally see it changing the market’s outlook and eventually the Fed’s one.
Central bank speakers:
- 09:45 GMT - BoE's Mann (hawk - voter)
- 14:35 GMT/09:35 ET - Fed's Logan (neutral - non voter)
- 18:00 GMT/13:00 ET - Fed's Musalem (neutral - non voter)
- 18:30 GMT/13:30 ET - Fed's Schmid (hawk - non voter)
