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Fed seen hiking again in December after September CPI accelerated to 3.7%
Major brokerages expect another 25bp Fed rate hike in December; San Francisco Fed President Daly says there is no urgency to act at the October meeting.
Why it matters
Consumer price inflation accelerated to 3.7% in the 12 months through September, hotter than economists expected, complicating the Federal Reserve's rate decision at its October 27–28 meeting. The federal funds rate stands at 3.75%–4.00% after a 25bp hike at the September meeting.
Key points
San Francisco Fed President Mary Daly told Reuters in an exclusive interview on October 14 that the Fed is "more likely than not" to need further short-term rate increases to rein in too-high inflation, but there is no urgency to decide at the October meeting: "We have the time that we need."
A Reuters-compiled factbox of brokerage expectations shows: BofA Global Research expects 50bp of hikes (October and December); Goldman Sachs, J.P.Morgan, Nomura, HSBC, Barclays, Deutsche Bank, UBS, Morgan Stanley, Macquarie, Standard Chartered and Citigroup all expect a 25bp hike in December, taking the range to 4.00%–4.25%.
CME FedWatch data prices a roughly 27% chance of an October hike and an 89.5% probability of a December move. Daly noted higher gasoline prices drove the overall increase while underlying inflation did not take a sharp turn upward; some borrowing costs, like 7.5% mortgage rates, are already damping demand in parts of the economy.
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