BNY Markets Head of Americas Strategy John Velis forecast a final Federal Reserve rate increase in December before new data showed faster September inflation, sharpening the focus on the Fed's October decision.
Velis made the call in an Oct. 13 BNY note, with his outlook dependent on that week's inflation readings. FXStreet reported Oct. 20 that he retained his December forecast after the data arrived. His original projection allowed a slight possibility of another increase in March.
The U.S. Bureau of Labor Statistics (BLS) said its Consumer Price Index rose a seasonally adjusted 0.6% in September from August. Prices were up 3.7% from a year earlier on an unadjusted basis. Gasoline drove more than half of September's monthly consumer-price increase.
The final-demand Producer Price Index rose a seasonally adjusted 1.3% for the month, the BLS said. Energy explained more than 80% of the increase in prices for final-demand goods. The broad producer measure posted its largest monthly rise since March 2022.
The Fed raised its benchmark rate by a quarter percentage point to a range of 3.75% to 4% in September. Minutes from that meeting show most policymakers judged that another increase by year-end would likely be appropriate, depending on incoming information. They also noted that higher energy prices put particular pressure on the real disposable income of low- and moderate-income households.
Velis argued in his BNY note that higher market rates and a flatter yield curve could tighten conditions in heavily indebted parts of the economy. In his assessment, that could reduce the need for repeated Fed increases.
BNY Investments Chief Economist and Macro Strategist Vincent Reinhart wrote separately on Oct. 20 that December appeared more likely for the next increase, though an October move remained possible. SMBC Americas Chief Economist Joe Lavorgna also favored December after the producer-price report, as earlier EconoTimes coverage of Lavorgna's forecast reported.
The Fed meets Oct. 27-28 and Dec. 8-9. The Bureau of Economic Analysis is scheduled to release its September Personal Income and Outlays report, including personal consumption expenditures price data, on Oct. 29, after the October rate decision.
