Will persistent inflation support a pause in US rate hikes?

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Persistent Inflation Could Reinforce Case for US Rate Hike Pause

Persistent inflationary pressures, as indicated by upcoming economic data, could strengthen the argument for the US Federal Reserve to maintain its current pause on interest rate increases. The Personal Consumption Expenditures (PCE) Index, a key inflation gauge, is expected to show continued upward trends, potentially influencing the Fed's monetary policy decisions at its upcoming meeting.
Expected Inflationary Trends

The October PCE report is anticipated to reveal persistent inflation. Core PCE, which excludes volatile food and energy prices, is projected to increase by 0.3 per cent month-on-month, mirroring September's pace. Headline PCE is also likely to rise by 0.2 per cent. On a year-on-year basis, core PCE is forecast to edge up to 2.8 per cent from 2.7 per cent, while overall PCE is expected to climb to 2.3 per cent from 2.1 per cent. These figures suggest that inflation remains above the US Federal Reserve's 2.0 per cent target.
Impact on Federal Reserve Policy

The continued presence of inflation above the Fed's target could reinforce the rationale for keeping interest rates steady. Maintaining the current pause in rate hikes would be supported by data indicating that inflationary pressures are not abating significantly. This stance aims to balance the need to control inflation with the potential risks of overtightening monetary policy.
Broader Economic Context

Alongside inflation data, other significant US economic indicators are due for release, including personal income and spending figures, and the revised estimate for third-quarter gross domestic product (GDP). The 3Q GDP estimate is expected to hold steady at 2.8 per cent. In related international economic news, a narrow decline in China's industrial profits by 10 per cent in October, a less severe contraction than September's 27.1 per cent fall, may offer some degree of support to global markets.

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Will persistent inflation support a pause in US rate hikes?

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