Rate cuts to be fiercely fought out inside Fed

The largely lagged data coming out of the US after the shutdown has so far not changed the picture significantly, even if last week’s soft retail sales report was not exactly favourable. Growth remains steady, job creation is subdued but there are no signs of significant labour shedding as yet. While the market is already pricing in significant Fed dovishness at this month’s meeting and into next year, we think there is room for disappointment here.

Whatever loyalist dive Trump ends up choosing to succeed Powell, the normal rotation will add some hawkish voices to the FOMC starting in January, and we expect every potential cut after this month's meeting to be fiercely fought out inside the committee. Inflation remains stubbornly high at 3% and it has shown no signs of trending back down, quite the opposite in fact, so appetite for an aggressive pace of easing is likely to be minimal.