Markets are pricing in higher chances of a December Fed rate cut after CPI data comes in via Investing.com
Following today, traders of short-term interest rate futures adjusted their expectations to now see an increase in the likelihood of an additional quarter interest rate cut by the Federal Reserve at its December meeting.
The probability of a Fed rate cut in the range of 4.25%-4.5% in December rose to 80%, which is a significant increase from the almost 60% probability valued before the release of inflation data.
In addition, traders expect a slowdown in the pace of rate cuts next year, with expectations that the Fed will slow down rate cuts if the policy rate reaches a range of 3.75%-4%.
“Barring any surprises in the upcoming data, we expect another 25 basis points of Fed rate cuts in December and further easing in 2025,” said Solita Marcelli, Chief Investment Officer Americas, UBS Global Wealth Management.
“Investors should shift more capital to fixed income or consider diversified fixed income strategies as a way to improve portfolio income. We also see US stocks as attractive amid strong economic growth, Fed easing, and strong AI investment.”
Data from the US Labor Department showed a slight increase in headline inflation figures in October, a result that was expected and expected to be considered by the Federal Reserve as it approaches its next policy meeting.
The consumer price index (CPI), a key indicator of price movements in the world’s largest economy, rose 2.6% year-on-year in October, a slight increase from 2.4% in September. On a month-on-month basis, the CPI rose 0.2%, in line with the previous month’s increase.
Excluding highly volatile components such as food and energy, the “core” CPI measure saw a 3.3% increase from last year and a 0.3% month-on-month increase, similar to figures recorded in September.
The most recent action by the Federal Reserve, last week, involved a widely expected cut in borrowing costs by 25 basis points, bringing the rate to 4.50% to 4.75%.
The central bank acknowledged that inflation remained “somewhat elevated,” but assessed that risks to maintaining stable inflation and a strong employment market were “equal.”
