Even though US inflation has finally decreased dramatically, this information was released after the election. However, since the midterm elections had minimal effect on investors, we are discussing the markets upcoming movements. In a nutshell, the celebration will probably go on.
Only 0.3% growth—less than half of September’s increase and less than the 0.5% forecast—was seen in the US Core Consumer Price Index in October. While 6.6% was expected, the YoY result barely increased by 6.3%. A notable fall has occurred. Further encouraging news for consumers is that the headline CPI slowed to 7.7%.
In July, Core CPI likewise experienced a similar decrease. Markets gained after that number increased by 0.3%, but then had to deal with two increases of 0.6% in a row. Simply put that this might just be an isolated case.
Both the decrease in the value of the dollar and the present stock market fiesta seems likely to last for now. The information is likely enough to confirm a 50bps increase in December, a decrease from four successive 75 bps increases. But what comes next?
It is crucial to keep in mind that Fed Chair Powell repeatedly highlighted that the peak interest rate will be higher than what the bank had previously anticipated and what markets anticipated. After December, the Fed might still increase interest rates, bring them to a high peak above 5%, and then hold them there for a prolonged period of time.
The Fed will make its decision on December 14 after the release of the CPI report on December 13. A return to a high inflation reading would fundamentally alter the situation. Forecasts for higher rates would accompany a 50bps increase in December.