Although it is unlikely that the Federal Reserve will cut interest rates again significantly in November, the consumer price index (CPI) to be released on Thursday will make it more likely that the Fed will "pause" rate cuts.

Traders are pricing in about an 88% chance of a 25 basis point rate cut at the next policy decision on Nov. 7, while the odds of keeping rates unchanged hover around 11%, according to CME FedWatch data as of Wednesday.

"Thursday's CPI will be important, and if it overheats, then the Fed has some work to do to make sure it lands on the right foot," said Jeremy Goff, director at Palmer Square Capital Management in New York.

Recently, the U.S. stock market is close to its all-time highs, and if there is a major surprise in the September CPI released on Thursday, the stock market may fall back.

The next batch of economic data could also be influenced by oil prices, which rose in October as conflict in the Middle East intensified and two major hurricanes hit the southeastern United States.

Goff said there are a lot of unpredictable things happening right now, and such aftershocks tend to gradually affect economic data over a period of time.

Moreover, the CPI report comes as the economy and U.S. job market, while cooling, remain more resilient than the Federal Reserve expected when it cut interest rates in September.

Data released on Tuesday showed the U.S. trade deficit fell 11% in August to a five-month low, also helping to boost U.S. GDP.

The Atlanta Fed's GDPNow model estimates that U.S. GDP grew at an annualized rate of 3.2% in the third quarter, up from 2.5% on October 1.

Ryan Sweet, chief U.S. economist at Oxford Economics, said in a report on Tuesday that Hurricane Milton would likely weigh on GDP growth in the fourth quarter.

Seamus Smyth, chief economist at Virtus Investment Partners, said it was “premature to talk about a pause in the Fed’s rate cuts,” but added that “unless we get some very bad news on the inflation front.”

While Smyth thinks a 50 basis point rate cut can be ruled out, he expects smaller 25 basis point cuts in November and December, with the Fed likely to cut rates every other meeting next year.

While a 25 basis point rate cut in November remains the most likely scenario, an upside surprise in inflation data could reignite talk of a pause in the Fed's rate-cutting cycle, Russell Investments investment strategist BeiChen Lin said Tuesday.

Before the CPI data was released, San Francisco Fed President Mary Daly said "two more rate cuts this year, or maybe one more," while Boston Fed President Collins stressed that a "cautious, data-based approach" should be taken to cut interest rates.

Article forwarded from: Jinshi Data