U.S. December rate-hike odds at 84% ahead of September inflation data
Key Facts
On October 29, markets were awaiting the U.S. personal consumption expenditures report for September, with the probability of a quarter-point rate hike at the December meeting priced at about 84%, according to InvestingLive. The bets followed the Federal Reserve’s decision the previous day to keep its target rate range at 3.75% to 4%, in a non-unanimous vote. Investors had priced in a roughly 88% chance of a hike before the decision and news conference, meaning the odds fell to 84% without disappearing. The awaited September report was important for assessing the inflation path ahead of the next Federal Open Market Committee meeting. September figures had not been released when the forecasts were prepared, so the anticipated readings remained estimates, not actual results.
InvestingLive forecast that the headline personal consumption expenditures index rose 0.5% month over month and 3.6% year over year in September, compared with 0.3% and 3.4%, respectively, in August. The core index, which excludes food and energy, was expected to rise 0.3% monthly and 3.1% annually, compared with increases of 0.2% and 3.0% in August. The forecasts therefore included acceleration in the monthly and annual readings for both indexes, not only in the annual core index as stated in the initial version of the report. The monthly core reading provides an additional gauge of the price path after food and energy are excluded, while the annual comparison places the latest change in the context of the previous twelve months. But the September figures cited were pre-release forecasts, while August data were the latest actual readings available in this comparison.
On October 28, the Fed kept the federal funds target range at 3.75% to 4%, and the committee approved the statement by a vote of 10 to 2. Lisa Cook and Beth Hammack dissented, preferring to raise the range by a quarter percentage point at that meeting. Their votes show that support for a hike was present within the committee even as the majority decided to leave the range unchanged. The Fed’s statement said that "inflation remains elevated," adding that gathering more information would help the committee determine the appropriate policy stance to ensure a timely return to its 2% inflation goal. The statement did not specify a date for that return in the quotation, but linked its policy assessment to the availability of additional information and the committee’s stated goal.
The committee described economic activity as expanding at a solid pace and said domestic spending had remained resilient, with uncertainty continuing amid geopolitical developments. U.S. consumer prices rose 3.7% in September from the same month a year earlier, according to the Associated Press, adding an inflationary backdrop ahead of the personal consumption expenditures report. In markets, the S&P 500 rose 0.3% in Wednesday’s session, while the Dow Jones gained 0.2% and the Nasdaq 0.3%. The agency said the yield on two-year U.S. Treasury notes fell after traders trimmed their expectations for rate increases. That came as the probability of a December hike remained near 84%, after standing at about 88% before the Fed’s decision and news conference.
The U.S. Bureau of Economic Analysis had scheduled the September personal income and outlays report, including personal consumption expenditures data, for October 29 at 8:30 a.m. Eastern time. The next Federal Open Market Committee meeting was scheduled for December 8 and 9, with the news conference to be held on December 9. Ahead of the meeting, Fed member Alberto Musalem was scheduled to take part on October 30 at 12:30 p.m. in a meeting of the Shadow Open Market Committee at the Penn Club in New York, to discuss the U.S. economy and monetary policy. The event was not listed as an official Fed speech. The Associated Press said two officials had supported a rate hike at the October meeting, and quoted analysts as expecting a hike in December because inflation remained elevated.