Can we cut interest rates in December?
Last week, the Fed unanimously decided to cut interest rates by 25 basis points, which was in line with expectations. Powell said at a press conference after the meeting that the fight against inflation is not over yet, core inflation is still somewhat high, and the job market continues to cool very slowly. The Fed will continue to cut interest rates, but if inflation cooling stagnates and the economy is strong, it can cut interest rates more slowly.
Bank of America Merrill Lynch believes that based on Powell's speech last week, this CPI data will not change the possibility of the Fed cutting interest rates by another 25 basis points in December. The Fed will receive another CPI report before the December interest rate decision.
Although the Fed has not hinted that it will pause its actions next, Wall Street's bets on slowing interest rate cuts are quietly heating up. Goldman Sachs currently expects the Fed to cut interest rates by 25 basis points at each of its meetings in December, January and March next year, and then by 25 basis points in June and September next year. Previously, Goldman Sachs predicted a 25 basis point cut in May and June.
It is worth noting that both Goldman Sachs and JPMorgan Chase have changed their forecasts for rate cuts after March. Some people are worried that Trump, who has already locked in the presidency, may implement policies that hinder inflation from returning to the Fed's target, so interest rates may need to return to neutral levels more slowly.
Looking ahead, Goldman Sachs expects that the core CPI will increase by about 0.2% month-on-month for the rest of the year, and inflation will fall further considering the rebalancing of the auto, home rental and labor markets. Goldman Sachs predicts that the year-on-year increase in the core CPI in December will fall further to 3.1%.