By Investing.com — Alpine Macro analysts said in a note Friday that the Federal Reserve will either pause or implement a modest 25 basis points (bps) rate cut at its next meeting in November, following the release of September’s U.S. Consumer Price Index (CPI) data.
The futures market continues to price in a total of 50 bps in cuts by the end of 2024, but Alpine Macro notes that the case for such large cuts has diminished.
The September CPI print showed a headline inflation figure of 2.4% year-on-year, a slight decrease from August’s 2.5%.
However, Alpine Macro highlighted that the underlying data no longer supports rapid disinflation.
“Inflation data is no longer falling rapidly—or even at all,” they stated, suggesting that the Federal Reserve is unlikely to move aggressively.
Reflecting on the Fed’s 50 bps cut in September, Alpine Macro noted that it was largely driven by concerns that inflation could undershoot the Fed’s target.
“At the time, the data suggested a growing risk that inflation would overshoot the Fed’s target to the downside,” they explained.
This led to what the bond market viewed as a necessary “recalibration” of rates.
However, the analysts now believe that the inflation and growth data since September has eroded the case for further significant rate cuts.
While the CPI print appeared benign, “the 12-month CPI reading does not tell the whole story,” Alpine Macro warned.
Given the current economic conditions, they anticipate that the Fed will adopt a more cautious stance.
With downside risks to growth and employment only marginally influencing decisions, the analysts concluded that “another -50bp cut is off the table. The question now is whether the Fed will cut by -25bp, or decide not to cut at all.”