Slowing of disinflation dampens prospects of cuts sooner-rather-than-later

Core inflation for November printed at 4%y/y, which is unchanged, whilst headline inflation did moderate at 3.1% y/y (3.2%), albeit the pace of disinflation slowed from a month ago. The core month-on month reading was 0.3%, which equates to an annualised 3.66% - still higher than the Federal Reserve's target of 2%. This combined with the higher than anticipated jobs data has put a dampener on the prospects of rate cuts for next year, despite the market's expectations.

Tomorrow the FOMC rate statement is released at 7:00PM GMT with Jerome Powell's press conference thirty minutes later. It is quite likely that rates will be held steady, but the higher-for-longer narrative is reiterated. This may further affect financial markets.

The 10-year real yield jumped 1.5 bps on the CPI release, with the prospects of being further supported tomorrow, depending on the tone of the FOMC statement and press conference. The bump up in yield has filtered through to other financial instruments with FXCM's USDOLLAR basket catching a bid, and pressure on gold and the risk side of the market.

Inflation is slowing but the Fed will stay guarded. "Higher-for-longer" is the likely outcome, with inflation still too strong to contemplate rate cuts sooner rather than later.

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Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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