Despite a surprising 0.7% surge in consumer spending in September and ongoing price pressures, market participants anticipate the Federal Reserve will maintain its current policy rate of 5.25%-5.5%. This projection comes even as the Fed’s preferred inflation indicators, the personal consumption expenditures price index and the core PCE price index, increased by 3.4% and 3.7% respectively year-on-year, exceeding the Fed’s 2% inflation target.
Futures contracts tied to the Fed’s target policy rate predict no chance of a rate hike at the upcoming rate-setting meeting or by the end of the year. Analysts from High Frequency Economics view this combination of decelerating inflation and strong spending as advantageous for policymakers. They forecast a slowdown in growth and further easing of price pressures.
These conditions are expected to keep the Federal Reserve on hold until at least mid-next year. The central bank’s cautious stance is understood to be a response to these mixed signals from the economy, with robust consumer spending on one hand and rising inflation on the other. As such, it appears that for now, the Fed is prioritizing maintaining economic stability over reacting swiftly to short-term fluctuations in economic indicators.
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