Fed seen headed for more rate cuts as inflation undershoots expectations

THE Federal Reserve will likely deliver quarter-point interest rate cuts at each of its next three meetings, traders bet on Friday (Oct 24) after a US government report showed consumer inflation rose a little less than expected last month.

The Consumer Price Index climbed 3 per cent in the 12 months through September, the Labor Department’s Bureau of Labor Statistics said on Friday, a tick up from its 2.9 per cent increase in August but below the 3.1 per cent expected by economists polled by Reuters.

That may give even the central bank’s more hawkish policymakers comfort that continuing to ease borrowing costs to support the labour market won’t reignite inflation, analysts said.

“As odd as it may seem, the Fed will be happy with inflation staying around 3 per cent for the next couple of months,” said Olu Sonola, Fitch Ratings’ head of US economic research.

Futures contracts that settle to the Fed’s policy rate reflected near-100 per cent certainty that the Fed will cut its policy-rate range to 3.75-4 per cent at its meeting next week, and a 95 per cent chance of a further cut in December. After the softer-than-expected September inflation reading, traders put about a 55 per cent chance on another rate cut at the Fed’s January meeting, up from less than 50 per cent previously. REUTERS