Sunday, November 24, 2024

Stubborn US Inflation Set to Reinforce Fed’s Go-Slow Approach

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(Bloomberg) — US inflation figures in the coming week that are seen showing stubborn price pressures will reinforce the Federal Reserve’s cautionary posture toward future interest-rate cuts.

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The personal consumption expenditures price index excluding food and energy — the Fed’s preferred measure of underlying inflation — is projected to have risen by 0.3% in October from September, and by 2.8% from a year earlier, in what would be the largest advance since April.

The report is also expected to reveal resilient household spending and steady income growth at the start of the fourth quarter. Consumer outlays, unadjusted for price changes, are forecast to climb 0.4% after a 0.5% advance the previous month. Personal income is seen rising 0.3% for a second month, buoyed by healthy yet moderating job growth.

While Fed policymakers will receive another set of inflation data — the November consumer and producer price indexes — before their Dec. 17-18 meeting, they won’t see another PCE price gauge as they debate whether to lower rates.

What Bloomberg Economics Says:

“Several Fed officials discussing US economic conditions of late have echoed a theme recently introduced by Chair Jerome Powell — a December rate cut isn’t a done deal and the central bank can slow its easing pace given subsiding risks to the economy.”

— Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou and Chris G. Collins. For full analysis, click here

The income and spending report packs the biggest punch for investors during a Wednesday data barrage ahead of the Thanksgiving Day holiday. The government that day will also release revised third-quarter gross domestic product, durable goods orders, jobless claims and merchandise trade deficit figures.

On Tuesday, investors will parse minutes of the Fed’s early-November meeting for hints of policymakers’ appetite for a third straight rate cut next month. As of Friday, market participants assigned slightly better than even odds for another quarter-point reduction.

Turning north, Canada’s third-quarter gross domestic product on Friday may help officials decide between a second 50 basis-point rate cut or a more cautious 25 basis-point move in December. Output data pointed to 1% growth, but economists expect the expenditure-based figures to land closer to a central bank estimate of 1.5% annualized expansion, supporting the case for more gradual reductions.

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