Investors enter the Federal Reserve’s Oct. 28 decision with inflation above its 2% goal, while futures pricing reported by CNBC points to a low likelihood of an October increase and a stronger December prospect.
On Sept. 16, the Federal Open Market Committee voted 12-0 to lift its federal funds target range by 0.25 percentage point, to 3.75%-4.00%. The Fed’s calendar sets the next decision for 2 p.m. ET (18:00 UTC) Wednesday, Oct. 28, with Federal Reserve Chair Kevin Warsh’s press conference to follow at 2:30 p.m. ET (18:30 UTC).
CNBC reported Oct. 27 that CME FedWatch pricing put this week’s increase odds near 10%; for December, the reading was above 80%. EconoTimes previously covered a Reuters poll in which economists expected an October hold and a December increase.
The Bureau of Labor Statistics said the Consumer Price Index (CPI) climbed 3.7% in the 12 months through September. The index excluding food and energy rose 2.6% over the same period. In September, the gasoline index rose 9.1%, representing more than half of the monthly gain in the all-items CPI.
The Fed’s longer-term 2% objective uses inflation measured by the Personal Consumption Expenditures (PCE) price index, a separate measure from CPI. The Bureau of Economic Analysis (BEA) showed the latest available PCE inflation at 3.4% over the 12 months through August. September’s BEA report is scheduled for 8:30 a.m. ET (12:30 UTC) Thursday, Oct. 29, after the policy decision.
CNBC has reported that Warsh favors a narrower role for forward guidance, which could leave investors with fewer explicit signals about policy. The Associated Press reported that at an Oct. 16 discussion in Bangkok with IMF Managing Director Kristalina Georgieva, Warsh said, “I don’t prejudge meetings.”
Deutsche Bank senior U.S. economist Brett Ryan told CNBC the latest inflation readings may keep further tightening under consideration for a later meeting. Mohamed El-Erian, Allianz’s chief economic adviser, told CNBC he expects more rate increases but views them as a mistake, arguing that housing and consumer borrowing would absorb more of the costs than technology.
