PIMCO: Higher US inflation increases likelihood of Fed rate hike
US inflation came in higher than expected in September, raising concerns about the Federal Reserve’s interest rate outlook. According to Tiffany Wilding, Economist at PIMCO, the broad-based increase in consumer prices is particularly concerning.
Core inflation rose by 0.3% month on month, compared with PIMCO’s forecast of 0.2%. Wilding notes that price pressures were widespread across discretionary categories, including owners’ equivalent rent, which is less sensitive to energy prices. Travel services, recreation and retail goods also recorded firm price increases.
‘This is not a good data point for the Federal Reserve,’ says Wilding, noting that policymakers had previously signalled they were unlikely to raise interest rates in October. Following the report, markets priced in a 50% probability of another rate hike that month.
Attention now turns to US retail sales figures, due on Thursday, as investors assess whether higher inflation is affecting economic growth.
Wilding continues to expect further rate hikes to effectively reverse last year’s cuts. However, Wilding cautiones that ‘more data like today’s CPI could potentially result in more aggressive action from the central bank’.