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The data likely changes nothing about what the Federal Reserve will do at its latest meeting on interest rates, which ends Wednesday. The widespread expectation is still for the Fed to keep its main interest rate steady.
The Fed has already yanked its main interest rate from virtually zero early last year to more than 5.25 per cent, its highest level since 2001. It’s hoping to slow the economy and hurt investment prices by exactly the right amount: enough to stamp out high inflation but not so much that it causes a steep recession.
Recently rising hopes that the Fed can manage such an “immaculate” landing for the economy have helped stocks to rally and bets to rise that the Fed’s next move on interest rates will be to cut sometime in 2024, perhaps as early as March.
Cuts to interest rates can juice prices for stocks and other investments, while offering more oxygen for the overall economy and financial system.
Following the inflation report, traders were betting on a nearly 42 per cent chance that the Fed will cut rates by March, according to data from CME Group. But a minority are also still betting on the possibility that rates could stay high for longer than expected.
Seema Shah, chief global strategist at Principal Asset Management, pointed to a slight acceleration in inflation when looking at how prices changed from October into November rather than from a year earlier.
“Simply put,” she said, “this isn’t enough inflation deceleration to reassert or justify the market’s policy easing expectations,” particularly when the job market remains solid.
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Other analysts and investors said they expect Fed Chair Jerome Powell to use the numbers to try in his press conference on Wednesday to push against traders’ conviction that rate cuts will come in the early part of 2024. Powell himself has already recently said it’s too early to consider when cuts could arrive.
In the bond market, Treasury yields were mixed following the inflation data. The 10-year Treasury yield fell to 4.20 per cent from 4.24 per cent late Monday.
The two-year yield, which moves more on expectations for action from the Fed, held steady at 4.71 per cent.
Toymaker Hasbro slipped 1.1 per cent after it announced additional job cuts as part of its cost-cutting program.
Icosavax soared 49.5 per cent after AstraZeneca said it would buy the biopharmaceutical company for at least $US838 million in cash, with the price tag rising if certain milestones are met.
In stock markets abroad, indexes held relatively steady in Europe and mostly rose in Asia.
The FTSE 100 in London was virtually unchanged after the Office for National Statistics reported a sharp slowdown in growth for wages. That could help weigh on inflation and shape the Bank of England’s upcoming decision on interest rates Thursday.
Crude oil prices fell to take some more pressure off inflation. A barrel of benchmark US crude lost $US2.71 to settle at $US68.61. It had been above $US93 in September but has been coming down amid worries about demand from the global economy failing to keep up with available supplies.
Brent crude, the international standard, fell $US2.79 to $US73.24 per barrel.
With AP
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