As inflation cools, Fed seen pivoting to rate cuts in May
By Ann Saphir
(Reuters) -Cooling inflation will allow the Federal Reserve to forgo any more interest rate hikes and indeed to start cutting rates by May, traders bet on Tuesday, after a U.S. government report showed consumer prices for October were unchanged compared with the prior month.
The report, which showed the consumer price index rose just 3.2% from a year earlier, after rising 3.7% in September, «looked pretty good,» Chicago Federal Reserve Bank President Austan Goolsbee said at the Detroit Economic Club.
And while he said he wants to see further progress, particularly on housing inflation, the drop in CPI inflation from around 6.3% in January looks on track to be the fastest one-year peacetime decline in more than 40 years, he said.
Goolsbee didn't update his view on the appropriate rate path on Tuesday, though even before Tuesday's data he was not among Fed policymakers advocating for further policy tightening
Prices of futures contracts that settle to the Fed's target rate were pricing in only about a 5% chance the Fed will raise its policy rate any higher than the current 5.25% to 5.50% range, down from 28% prior to the Labor Department report.
Core inflation, which excludes energy and food, rose 4% from a year earlier, the slowest pace in more than two years, the report showed. While still well above the Fed's 2% target, the trend downward may give Fed policymakers more confidence that policy is tight enough to do the job.
Traders and many analysts certainly felt so.
«You can say goodbye to the rate hiking era,» said Brian Jacobsen, chief economist at Annex Wealth Management.
J.P. Morgan Economist Michael Feroli, in a note to clients, said already low odds of a December rate hike have been further
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