With the next meeting of the Fed just ahead, interest rates are drawing a lot of attention, especially with the recent upward tick in longer-term maturities. The US inflation has come down significantly since May 2023 and has hovered around 3% - 4.1% with 3.7% currently. The aggressive hikes in the past have pushed the federal fund rate up to 5.25% on the lower end, which is now substantially higher than the inflation rate. Figure 1 shows the development of both since 1994 and the recent shift. The US core PCE as an alternative measure of inflation (excluding food and energy) has also reached 3.7% for the first time since May 2021 and is an arguably more important factor for the Fed in the determination of their rate. With this positive development, it is unlikely that another hike is necessary in their November meeting. This notion is strongly supported by market participants, who see the chance for a rate increase at a probability of close to zero.
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