观点

The release yesterday of the stronger US CPI report for September will keep pressure of the Fed to keep hiking rates and has raised the probability of a back-to-back hike later this month.

We are still assuming that the Fed will leave rates on hold this month after comments from Fed officials indicating that they are not in a rush to hike again as soon as this month.

Fed Cahir Kevin Warsh’s comments at the Annual IMF meetings in Thailand on Friday will be scrutinized even more closely now after the stronger US CPI report.

We had said that anything near consensus would not likely shift the narrative for the Fed for October, but this isfar enough from consensus toatleast make itadebate.

Fed Chair Kevin Warsh has said that he welcomes “live” meetings and it looks like that iswhat he will get in October.

Ultimately, we think the Fed will pause when itmeets inafew weeks, but today’s data atleast gives the hawks more ammo and ifmarkets continue toprice inahike, the FOMC may be loathe tosurprise with ahold.

Separately, New York Fed President John Williams reiterated that one additional rate hike may be necessary this year to contain inflation, although he sees no need for further tightening in 2027.

Williams remains confident that underlying disinflationary forces will help bring inflation towards the Fed's 2% target, with energy prices unlikely to add further inflationary pressure next year.

Taken together, the comments suggest that while the Fed may not be done tightening, policymakers remain relatively confident in the medium-term disinflation outlook.

Market Watch: Looking ahead, today's focus will be on US and China CPI, China's September trade data and the Fed's Beige Book.

A busy lineup of Fed and ECB speakers at the meetings in Bangkok will also provide further insights into the global monetary policy outlook.

Still, we remain sceptical that inflation pressures will continue to build and while we expect the Fed to hike again in December, we do not expect the Fed to deliver the two further rate hikes currently priced by the markets.

Taking the PCE measure of inflation, the annualised 3mth change fell in August to the Fed’s 2.0% inflation target for the first time since July 2024.

If we project forward current market pricing for the Fed’s policy rate by the middle of next year and use the consensus inflation forecast, the implied real fed funds rate reaches 2.60%, not far from the peak restrictiveness seen following the global inflation shock.

We don’t believe the Fed will need to raise rates to that leve l.

Meanwhile, White House economic adviser Kevin Hassett said it is "very possible" the Fed could hold if inflation keeps slowing.

FOMC: We’re forecasting two more rate hikes to a fed funds target rate of 4.5% including one more increase likely in December followed by one more hike in 2027Q1 and then flat at the terminal rate over the rest of 2027.

Call it reinsurance on the Fed’s insurance hikes because raising the policy rate by just 25-50bps would accomplish very little in terms of the lagging effects on growth and inflation.

We forecast the BoC’s current -175bps policy rate spread to narrow to about 100bps below the Fed.

Inflation has continued to moderate, but we expect progress toward the Federal Reserve's target to remain gradual and uneven.

Although moderating wage pressures and productivity gains could help contain inflation, we believe structural and supply-side factors will keep inflation above the Federal Reserve's target for some time, resulting in a longer and less predictable path back to price stability.

That said, Federal Reserve rate hikes will have limited impact on these two price drivers.

Right now our forecast is for a December Federal Reserve rate hike before a long pause, but the risks to that view are skewed towards the Fed moving rates even higher before rate cuts come through.

I wouldn’t rule out another hike on October 28th despite some guidance from FOMC officials.

Cleveland Fed President Hammack delivered a hawkish speech yesterday, arguing that the Federal Reserve should move relatively quickly towards a restrictive monetary policy stance, with smaller and earlier adjustments being preferable to waiting and potentially requiring larger hikes later.

Both are expected to play an important role in shaping expectations for the Federal Reserve's next policy decisions.

His remarks will attract particular attention as they come just before the blackout period ahead of the FOMC meeting at the end of the month.

Chair Warsh's speech will attract considerable attention in this regard, although his reluctance to pre -empt policy decisions means he may offer few clues ahead of the FOMC meeting around two weeks later.

Together with firm activity, this should require further tightening from both the Fed and the BoC.

Persistent inflation and resilient activity should lead the Fed to raise rates twice more, taking the federal funds rate to 4.5% in early 2027, before reversing those hikes in 2028 as the economy slows.

Rates first — the Fed has actually gone back to hiking, and it's a global story, with more central banks hiking than cutting for the first time in years.

▪ Upside risk: A core reading of 0.3% would keep rates under pressure and push hiking expectations for the Oct FOMC meeting towards 30%.

▪ Downside risk: A 0.1% MoM core reading would quell expectations of a Fed hike in Oct, prompting a bull steepening move.

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Accordingly, they signaled that additional rate action was likely but not imminent, acknowledging that the rise in bond yields was doing part of the job, and that there were no signs yet of second round effects.

Although the recent jump in G7 bond yields was not war-related, higher yields could make market conditions increasingly sensitive to disruption (Figure 3).

U.S. Treasury Bills maintain a stable value if held to maturity, but returns are generally only slightly above the inflation rate.