Higher US inflation will not stop the Fed from cutting rates
|US consumer inflation was in line with analysts' average forecasts, but it still triggered a weakening of the dollar and increased interest in buying stocks. This reaction suggests that traders were expecting a higher number and that there is now a slight shift towards a more dovish Fed for the coming months.
Headline CPI rose 0.2% for the fourth month in a row, and the annual rate climbed from 2.4% to 2.6%. While this is above the 2% target, it shouldn't prevent the central bank from cutting rates in December and continuing to do so.
The core price index, which excludes food and energy, rose 0.3% for the third month in a row, and the annual growth rate was 3.3%.
Coincidentally, the start of the Fed's taper in September coincided with a stabilisation of the rate of price increases at elevated levels. Nevertheless, current levels do not worry markets and observers. The odds of a rate cut in December have risen to 79% from 59% the day before, as the Fed Funds rate in the 4.50%-4.75% range creates rather tight monetary conditions, impressively above the inflation rate.
Technically, this is bearish news for the dollar and positive for the equity and commodity markets, as it reignites speculation about the next rate cut. However, traders should bear in mind that attitudes towards the dollar have been influenced by news of potential trade tariffs since the beginning of October and probably over the next few weeks, with the focus returning to monetary policy by December.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.