As most Federal Reserve officials expect future interest rates to be lowered, a key report on Wednesday is expected to show inflation deviating further from the Fed's target.

At 11 PM Beijing time on Wednesday, the U.S. Department of Commerce will release the October PCE price index, which is the inflation data most favored by the Federal Reserve.

Economists surveyed by Dow Jones expect the overall price index to rise by 0.2% month-on-month, while the core inflation rate, excluding food and energy, is expected to rise by 0.3% month-on-month. Although both readings are the same as in September, the year-on-year growth rates are expected to rise to 2.3% and 2.8%, respectively. While this is an improvement from the peak in mid-2022, both trends indicate that the Fed has yet to achieve its 2% inflation target.

More importantly, the market is beginning to anticipate Trump's presidential election victory and his growth-promoting agenda, as well as plans to impose hefty tariffs on global imports, which could make the Fed's task more difficult. Brett Ryan, a senior economist at Deutsche Bank in the U.S., stated in a report, "Recent data shows that the progress of inflation has slowed, and this policy combination will reinforce these signals."

In fact, even though Fed officials have indicated their intention to continue lowering interest rates, Ryan predicts that the core PCE inflation rate "will stagnate at" 2.5% or higher until 2026. Recently, the market has also become increasingly skeptical of the Fed's ability to ease policy.

According to the CME FedWatch Tool, on Tuesday, the market slightly increased the implied probability of the Fed continuing to cut rates in December to just above 50%, expecting that the federal funds rate will decrease by 75 basis points by the end of 2025. Deutsche Bank U.S. economist Matthew Luzzetti even predicts that the Fed will make one last 25 basis point cut in December and then pause.

Experts from BlackRock stated in their weekly market report on Monday, "Recent data shows that wage growth remains high, indicating that core inflation is unlikely to easily fall to the Fed's target of 2%. As signs of persistent inflationary pressure become more evident, the market has absorbed expectations of rate cuts from the Fed and is increasingly aligning with our aforementioned views."

Article reposted from: Jinshi Data