Next week will bring important new information. The November CPI print out Tuesday will set the stage for the FOMC meeting Wednesday.
The softer-than-expected October core CPI, which rose 0.3% month on month (vs. 0.6% in September), has born the narrative that core CPI will come down sharply. Investors and forecasters are now projecting core CPI to run at a monthly rate of 0.3% towards the end of the year and in 2023.
In our view the October CPI will prove to be the start of a more disinflationary trend. The big question to us is whether the categories with large price declines will show equally extreme price declines each month going forward.
Goods categories like apparel, household furnishing, and recreational goods are likely to fall back because of a stronger dollar, falling transportation costs, falling commodity prices, large improvements in the supply-chains, and a significant rebound in inventories. The same progresses holds for the cars category, which constituted the largest drag in October.
This should bolster the Fed’s intention to downshift its interest rate hiking pace, but not the level of the terminal rate. We expect the Fed to hike the fed funds rate by 50bps and to increase the rate path by 25bp for 2023 and 50bp for 2024. This will leave the dot plot far above the current market pricing for the next two years.
Yorumlar