Cooling inflation bolsters Fed hike pause idea

A key gauge of the US consumer price index, so-called core inflation, which excludes food and energy, posted its smallest monthly advance in more than a year last month, according to a Labor Department report released Tuesday.

The dovishment was broad-based, with a measure of utility prices favored by the Fed chair, Jerome Powellalso slowing down.

The US central bank is expected to raise the target range for its benchmark interest rate by half a percentage point to 4.5% from 4.25% on Wednesday after four consecutive 75 basis point moves. Officials will also release updated quarterly projections for how high rates will rise next year.

The observers of the fed They said the inflation data was probably not in time to prevent an upward revision to show a top rate of around 5%, though the numbers strengthen the case for an ongoing easing in the pace of adjustment.

“I suspect that the projections were closed before the weekend and therefore will not reflect today’s numbers.said Aneta Markowska, chief financial economist at jefferies In New York. “I was assuming another 50 basis point increase in February, but I think the more dovish members will push hard for a 25 basis point increase, and they certainly have a stronger case after today’s release.”

This week’s decision will be announced Wednesday at 2 p.m. in Washington and Powell He will give a press conference 30 minutes later. The next decision of the fed after that it is scheduled for February 1st.

Stocks rose on Tuesday after the Labor Department report was released and bond yields fell.

Although the inflation data is moving in the right direction, officials at the fed they have emphasized that they want to see a series of positive monthly reports before significantly changing course.

They may also worry about the market’s reaction to the data because easier financial conditions will make it easier for businesses and households to get credit, he said. brett ryansenior economist at USA at Deutsche Bank in New York.

“Today’s information makes it easier for the Fed to continue to slow hikes to 25 basis points at the February meeting, but it probably won’t have much of an impact on the overall inflation outlook for the Fed.“, said Ryan. “The easing of financial conditions is contrary to its objective of balancing supply and demand. So we think officials will lean against that.”.