Investors globally will be keen to get deep into the next set of inflation numbers to be released this week. The October 2022 CPI data are scheduled to be released on November 10, 2022, at 8:30 A.M. Eastern Time.
The US Fed still has a job to do, and the battle to keep inflation under control is still going on. Although a reduction in the headline inflation rate is anticipated, the market will be focusing on the core inflation figures. “US CPI data for October may influence decisions by Fed Reserve on whether or not they will stick to the current rate hikes. Investors would get a whiff of what may come in December from the central bank. The report, due on Thursday, this week, will decide if the Fed is going for a five percent terminal rate or above,” says Kunal Sawhney, CEO of Kalkine Group
This is how US inflation moved between May and September.
US inflation jumped from 8.6% in May to 9.1% in June, then declined to 8.5% in July, further slid to 8.3% in August 2022, and finally 8.2% in September 2022.
The Fed is having issues since the core inflation is still out of control and the economy is growing. The latest US GDP numbers show that the U.S. economy has resumed economic growth despite prior hikes (2.6 percent GDP growth for Q3). Additionally, it appears that job growth in the American economy is continuing at a post-pandemic rate, which could persuade the Fed to keep tightening monetary policy.
From a near zero rate interest rate, the Federal Funds Rate has been raised by 3.75 percent so far in 2022. As far as Fed Pivot is concerned, which the markets were looking forward to, the wishful thinking burst on November 2 when the Fed FOMC delivered the fourth consecutive rate hike. Fed remained hawkish in its approach and adamant to bring inflation under the target level of 2%.
To bring inflation under 2% from the current levels of above 8%, the FFR is expected to cross over 5% sometime in 2023. The impact of rate hikes is typically seen with a lag, therefore, the markets expect the Fed to signal the loosening of tightening measures sometime in 2023.
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Fed Chief Powell had categorically said on November 2 commentary that in determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
Still, any signs of inflation cooling down, especially the core inflation numbers, may be looked upon in bright light by the markets. Future Fed action will also hinge a lot on the November 10 inflation release before the market decides on Fed Pivot, if at all it has to come in early 2023.