Deutsche Bank's View on US CPI - FJElite
The CPI release got more attention than usual, partly because of comments from Fed Governor Waller a few hours beforehand. He was speaking in London, where he said that “if the October CPI inflation data out later today are similar to the past two monthly readings - with core CPI inflation around 0.3 percent or even higher”, then he thought “a 50 basis point hike in the policy rate should be considered at the December meeting”. Indeed, he also said that in those circumstances, a 25bp hike “would put our credibility at risk”. So when the core CPI print was confirmed at 0.3%, that led to mounting speculation about a larger rate hike.
That impact was clear from market pricing, with the amount of hikes for a December up from 21.0bps on Monday to 27.7bps by last night’s close, and 28.5bps this morning. So in other words, a 25bp hike is fully priced in, with futures also pricing in a 14% chance of a larger 50bp move. But it wasn’t just December that was affected, with markets pricing in a more hawkish profile further out the curve as well. Indeed, the rate priced in for the September 2027 meeting was up +22.3bps yesterday, so investors had priced in almost a full additional rate hike to next year’s path. Meanwhile, DB’s own US economists have updated their Fed view, adding a rate hike in January to their profile. So they now expect three more 25bp hikes at the next three meetings (Dec, Jan and March).