Weak U.S. growth outlook provides Fed flexibility to offer more “insurance” rate cuts, says ING Economics

Weak growth outlook in the United States is providing the Federal Reserve the flexibility to offer more “insurance” rate cuts, according to the latest research report from ING Economics.

US headline inflation was flat on the month versus expectations of a 0.1 percent m/m gain, which leaves the annual rate of inflation at 1.7 percent.

There continues to be evidence to suggest that tariff hikes are putting upward pressure on consumer prices, given the marked pick-up in goods price inflation in recent months. However, inflation is a lagging indicator and service sector inflation doesn’t show a broader threat.

With PPI and wage growth slowing markets may already be seeing a moderation in pipeline price pressures that results in the Fed retaining a relaxed attitude to inflation, especially given the weakness in forward-looking activity survey such as NFIB and ISM.

Next week’s retail sales will have positives from autos, but gasoline will be a drag and chain store sales have been softer. Industrial production will fall, led by manufacturing, given employment in the sector fell and the ISM production component is firmly in the contraction territory, the report added.

Housing data may be supported by falling mortgage rates, but the declines in consumer confidence suggest this may not last.

"Looking at the data flow between now and the October 30 FOMC meeting, we have to say the odds of a third rate cut from the Fed are likely to increase," ING further commented in the report.