Is Hiking Interest Rates Still on the Table?
An unexpectedly cool inflation report has stirred confidence among investors and Wall Street economists that the Federal Reserve will refrain from further rate hikes at least until the year’s end.
Following the data release, market indicators were showing that there’s almost a 100% chance that the Fed will maintain the current rates in December, as per data from the CME Group.
Morgan Stanley’s chief economist, Ellen Zentner, commented, “The soft October CPI on the services side and a potential similar reading in November might not meet the threshold we had set for an additional rate hike in December. We believe that subdued inflation and the prevailing tight financial conditions will keep the Fed from making any changes.”
However, this doesn’t necessarily mean that the central bank can be confident of winning the battle against inflation just yet.
Michael Pearce, the lead US economist at Oxford Economics, warned, “Other than housing, where prices only rose by 0.3% in October, there are signs that the inflation in services might persist, reflecting the tight labor market conditions. Achieving the 2% inflation target is still a distant goal.”
Pearce continued, “The October CPI report should give Fed officials more assurance that inflation is steadily declining, which is likely to deter any further rate hikes. Nevertheless, the disinflation process is ongoing and achieving weaker services inflation hinges on the labor market conditions cooling down, so it will be a while before the Fed can even contemplate reducing interest rates.”
