At 21:30 Beijing time on Wednesday, the United States released its October CPI data. The annual CPI rate was 2.6%, in line with expectations of 2.6%, higher than the previous value of 2.4%, in line with market expectations, a three-month high, ending the "six consecutive declines"; the October seasonally adjusted CPI monthly rate was 0.2%, in line with expectations and the previous value of 0.2%.
The core CPI annual rate was 3.3%, in line with expectations and the previous value of 3.3%; the core CPI monthly rate was 0.3%, in line with expectations and the previous value of 0.3%.
“After a string of unusually torrid fall data, today’s data assuaged concerns that the Fed’s pace of rate cuts was about to slow,” said Lindsay Rosner, an analyst at Goldman Sachs Asset Management.
After the release of the US CPI data, spot gold rose by $7 in the short term, and the US dollar index fell by nearly 30 points in the short term, and then quickly recovered. Non-US currencies rose across the board, with the euro rising by nearly 30 points against the US dollar in the short term, the pound rising by more than 30 points against the US dollar in the short term, and the US dollar falling by 45 points against the Japanese yen in the short term.
The most active gold futures contract on COMEX traded 3,482 lots in one minute between 21:30 and 21:31 Beijing time on November 13, with a total contract value of US$914 million.
Traders have increased their bets on the Fed's December rate cut. According to CME's "Fed Watch", the probability that the Fed will maintain the current interest rate unchanged by December is 24.3%, and the probability of a cumulative rate cut of 25 basis points is 75.7% (before the CPI was released, it was 37.9% and 62.1%, respectively). The probability of maintaining the current interest rate unchanged by January next year is 16.5%, the probability of a cumulative rate cut of 25 basis points is 59.2%, and the probability of a cumulative rate cut of 50 basis points is 24.3%. (Before the CPI was released, it was 26.5%, 54.9%, and 18.6%, respectively).
Kashkari, chairman of the Federal Reserve, said, "The overall data in the CPI report confirms our current trend." We are not ready to declare that inflation will stay above the 2% target. We do not see obvious upside risks to inflation at present; the greater risk is that the economy may stagnate. The labor market is in good condition and we hope to maintain this state. Higher productivity points to a higher neutral interest rate level.
Analyst Enda Curran said that as expected, housing costs remain the largest source of inflation. The Bureau of Labor Statistics said that housing accounted for more than half of the monthly increase in all items in October. The auto insurance index fell in October, but it is still 14% higher than a year ago.
A closely watched measure of housing costs accelerated last month, with owner equivalent rent (OER), a measure of homeowner housing costs, rising 0.4%, up from 0.3% in September. Analyst Chris Anstey said that since mortgage rates are no longer falling, it may be difficult for housing costs to show a clear trend of slowing inflation for some time.
Although the CPI data was in line with expectations, there are signs of further improvement ahead. Brian Jacobsen, chief economist at Annex Wealth Management, said durable goods prices fell 2.5% year-on-year and non-durable goods prices fell 0.5%. Service inflation remains high but is no longer accelerating. The inflation risk from possible tariffs, deficits or immigration changes is vague and uncertain, and is not a major concern until we get more details on what might happen.
While the market was relieved that price increases were modest, it is worth noting that the 0.3% core CPI increase kept inflation trending above the Fed's 2% target. The report had some good news for the Fed, as the so-called "super core" services index, which excludes housing costs, rose in October by the smallest amount in three months, with a 0.31% gain slightly below the 0.35% average this year.
The Wall Street Journal pointed out that despite the stabilization of inflation data, Fed policymakers currently still seem likely to cut interest rates by another 25 basis points when they hold their last meeting of the year next month. This is first of all because, despite the bumps along the way, inflation seems to be on a cooling trend. In addition, there is still a certain degree of "catch-up inflation" in the data. Fed officials also believe that the current level of short-term interest rates is restrictive, which means that without further rate cuts, the job market may cool further than they expect, and even put the economy at risk of recession.
The WSJ added that the Labor Department will release its next consumer inflation report on Dec. 11, a week ahead of the Fed meeting. If the data is much stronger than Fed officials hope, they may choose to temporarily pause further rate cuts. This is especially true if the November jobs report, due on Dec. 6, shows a rebound in employment, confirming that last month's slowdown was merely a reflection of hurricane- and strike-related problems.
Dissatisfaction with inflation helped Republican Donald Trump win last week's presidential election, defeating Democratic candidate and Vice President Harris. However, economists predict that inflation will rise next year if Trump continues to pursue his economic policies, including tax cuts and higher tariffs on imported goods. In addition, Trump has vowed to deport illegal immigrants on a large scale, which economists say will reduce the labor supply and increase costs for businesses, which will then be passed on to consumers. Although the Federal Reserve is expected to cut interest rates again in December, economists see limited room for further rate cuts next year.
Charles Schwab UK managing director said the election has somewhat muddied the outlook for the coming months. Like many others, he will be keeping a close eye on the incoming Trump administration's plans for tariffs, immigration and tax cuts. Since there is another CPI data release before the December Fed meeting, he will not place too much weight on this data. "Expectations for the Fed's next interest rate decision may not be affected by today's report, as the Fed is currently more inclined towards an employment-oriented mission."
Article forwarded from: Jinshi Data