The US dollar is sinking today and risk assets are roaring higher after a softer-than-expected US CPI report.
Economists at CIBC note that core inflation rose by 0.2% month-over-month, and year-over-year core inflation slightly decreased to 4.0% from 4.1%. Importantly, core services inflation rose 0.3% in October, down from 0.6% in September as shelter inflation eased. However, the Fed’s preferred measure of prices tied to underlying demand, non-housing services, stayed at a steady 0.4% m/m.
"The Fed will likely be pleased with this additional bit of progress as core inflation has remained steady in a range close to target since June. As a result, we are removing our call for the Fed to hike in December," CIBC writes.
The market is no longer pricing in any chance of a hike in Dec or January, with 20 bps of easing priced in for May.
While there remains a risk the Fed could reassess its stance in early 2024, today's data, combined with evidence of a softening labour market and most importantly, the change in tone of the FOMC to show greater patience suggests December is likely off the table. The FOMC has time to wait to assess the emergence of further price pressures.
Overall, they say it's 'very likely' that the Fed has reached the terminal top.