📝CPI Figure to Amplify Impact Of FOMC Meeting Outcome: UBS Strategy

If US CPI for November is materially different from expectations, it has the potential to dull or amplify the impact of this week's FOMC meeting outcome on markets. UBS Economics expect a 0.25% m/m increase in the headline CPI on weaker gasoline prices (consensus: 0.3%, last: 0.4%) and an on-consensus 0.31% m/m increase in core (last: 0.3%).

A lower-than-expected core print would benefit duration-sensitive assets including Growth equities, as well as encouraging USD downside as a first pass reaction that caps the terminal Fed funds below 5% into year end. More specifically, a step-down in core services prices excluding energy and shelter would put more emphasis on investor expectations for growth and inflation next year relative to FOMC's inflation projections and dot plots - a risk-friendly outcome.

By contrast, a higher-than-expected core print would put greater weight on the Fed's expected higher-for-longer message that accompanies a 50bp hike and is unlikely to reveal a step-down to a 25bp hiking pace for its subsequent meeting.

- UBS Strategy