Markets to Focus on U.S. Inflation Data Today
The US Consumer Price Index (CPI) data, which will be released today at 16:30, is set to play a significant role in global markets and the Fed's monetary policy decisions. Market experts expect a monthly increase of 0.3%, with headline inflation projected at 2.7% year-on-year and core inflation at 3.3%.
There is a strong expectation that the Fed will implement a rate cut at next week's meeting. However, it is emphasized that inflation figures will be closely monitored. While persistently high inflation does not completely eliminate the possibility of interest rate cuts, it is believed that it could provide a clearer picture for the upcoming months.
The Fed's interest rate policy is being closely watched by markets. In the short term, low inflation data may lead to pricing against the dollar and bolster expectations for a Fed rate cut. Conversely, robust inflation data could have the opposite effect. According to a CME survey, 86% of investors believe that the Fed will implement a rate cut, reflecting an almost certain expectation of a rate reduction in the markets.
Last week, Fed Chair Powell stated that the rate cut in September was a strong signal for the labor market. Powell expressed a goal for monetary policy to become less restrictive over time. The resilience of the US economy in the face of high interest rates complicates efforts to reduce inflation.
Interest rate decisions in Europe and Japan will be closely monitored. The European Central Bank (ECB) interest rate decision, to be announced tomorrow, is crucial as it is impacted by political uncertainties in Europe and US policies. While market expectations are for a 25 basis point rate cut, there are indications that the ECB may consider a larger reduction.
In Asia, the Bank of Japan's (BOJ) interest rate decision will be announced on December 19. There is increasing pressure among experts for the BOJ to enact a swift rate increase to mitigate the risk of being behind the curve. Both developments will shape investor expectations in the Asian and European markets.