Fed December rate cut back on the cards but 'difficult' to see sub 4% adjustment

A key speech by Federal Reserve chair Powell last week made it clear that a rate cut in December is not at all a foregone conclusion, and suggested that the extent and duration of the current cutting cycle need to be revised.

Markets promptly did so, though the move higher in rates had already started after yet another inflation print that showed the core index growing at a 3-4% annualised rate for the third consecutive month.

Markets are now pricing in a 60% chance of a December cut from the Fed. This outcome could depend completely on the single CPI inflation report that will be released before the 18th December meeting date. At any rate, it is difficult to see the Fed bringing the rate significantly below 4% under the circumstances, given the expected inflationary impact of Trump's tariffs and tax cuts.