SAN FRANCISCO – US Federal Reserve policymakers are very likely to go ahead with cutting short-term US borrowing costs by a quarter percentage point next week, traders bet on Oct 31, after inflation data suggested price pressures continue to ease.
Inflation by the Fed’s preferred measure, the year-over-year increase in the personal consumption expenditures (PCE) index, was 2.1 per cent in September, down from an upwardly revised 2.3 per cent in August, a US Commerce Department report showed on Oct 31. The Fed wants to hit a 2 per cent inflation target.
A separate report from the US Labour Department showed the employment cost index rose 0.8 per cent in the third quarter from the previous quarter, less than what economists had forecast and the smallest increase since the second quarter of 2021.
A rise in labour costs was among factors that had alarmed Fed policymakers back then, prompting their pivot to tighter policy.
“Policymakers at the Federal Reserve are likely to be encouraged by this data as wage growth measures at levels consistent with less inflation,” wrote Indeed Hiring Lab economist Cory Stahle.
Futures contracts settling to the Fed’s policy rate put the chances of a 25-basis-point cut next week at about 94 per cent, and give a second 25 basis point in December about a 70 per cent chance.
The reports – the last major economic data, along with Nov 1’s monthly jobs report, before the Fed’s Nov 6 to Nov 7 meeting – did not suggest the US central bank’s battle with inflation is done.
Underlying price pressures, as tracked by the core PCE price index that excludes volatile food and energy, ticked up to 2.7 per cent from a year earlier, higher than the 2.6 per cent economists had expected and matching the prior month’s increase.
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