Fed seen keeping rates on hold well into next year (updated)

Valartis AG

27/10/2023 14:32

(Adds background on inflation data)
       Oct 27 - Cooling inflation will likely keep the Federal
Reserve on pause in coming months, traders bet on Friday, even
as persistent underlying price pressures amid strong consumer
spending kept some chance of a rate hike later this year in
play.
    The personal consumption expenditures price index, which is
the Fed's preferred inflation gauge, rose 3.4% in September from
a year earlier, a Commerce Department's Bureau of Economic
Analysis report showed on Friday, and the core PCE price index,
which the Fed takes a signal for future price pressures, rose
3.7%. That's down from a 3.8% reading in August but well above
the Fed's 2% inflation target.
    Consumer spending rose 0.7% in September from August, more
than economists expected. 
    Still, traders continue to price in no chance the Fed will
lift its policy rate from the current 5.25%-5.5% range at next
week's rate-setting meeting, and less than a 20% chance of an
increase by the Fed's December meeting, based on futures
contracts that settle to the U.S. central bank's target policy
rate. 
    "Overall, spending remains positive, and inflation is
slowing, a welcome combination for policymakers," wrote analysts
at High Frequency Economics. "We continue to expect a slower
pace of growth going forward and a further easing in price
pressures, which should keep the FOMC on the sidelines for the
rest of 2023."
    Traders continue to expect a first Fed rate cut in June of
next year, based on interest-rate futures pricing. 

 (Reporting by Ann Saphir; Editing by Christina Fincher)