New data on Wednesday showed the “core” consumer price index (CPI) rose 3.3% in October, in line with Wall Street expectations.
Immediately after Wednesday’s release, markets continued to price in a further 25 basis point rate cut in December, after the central bank cut rates by that amount last week. Traders currently see a more than 80% chance that the Fed will cut rates by 0.25% next month, up from just under 60% on Tuesday, according to data from CME’s FedWatch Tool.
But there were more signs of persistence in Wednesday’s release, which reminded investors that the latest decline in inflation to the Fed’s 2% target is proving to be bumpy. This can be seen in our chart of the day, where three-month annualized inflation moved from 3.1% last month to 3.6% after the October CPI release.
Nationwide’s chief economist Kathy Bostjancic wrote in a note Wednesday that this trend could make the December meeting a “closer call” than previous meetings.
Looking further ahead, the shaky three-month trend is one reason why markets have started to price in fewer Fed rate cuts in the first half of 2025. As of Wednesday, markets had priced in two Fed rate cuts by the end of June. , down from four at the beginning of November.
“Inflation data in recent months has not shown much additional progress, and the election results have raised new questions about the future path for price growth,” Wells Fargo senior economist Sarah House wrote in a note to clients. “We believe the time is fast approaching when the FOMC will signal that the pace of rate cuts will slow further, perhaps to a pace that will follow every other meeting from 2025.”
