Fed Seen on Track to Cut Rates Next Week and in December

• With inflation now only just above the Federal Reserve's 2.0% target and wage pressures easing, U.S. central bankers are widely expected to cut short-term borrowing costs next week in an effort to keep the labor market from further cooling.
• However, an uptick in underlying price pressures evident in data released on Thursday, what's likely to be a confusing monthly read on the labour market on Friday, and uncertainty over the outcome of the Nov. 5 U.S. presidential election make the road for further interest rate reductions in December and especially next year less clear.
• The year-over-year increase in the personal consumption expenditures (PCE) price index dropped to 2.1% in September from 2.3% in August, a Commerce Department report on Thursday showed. The Fed aims for 2% inflation.
• A separate report from the Labour Department showed that the broad wage-growth gauge known as the employment cost index rose 0.8% in the third quarter compared to the previous quarter, the smallest increase since the second quarter of 2021.
• The fact that wage growth eased last quarter even as the economy expanded solidly may give Fed policymakers added confidence that inflation won't resurge and a green light for interest rate cuts in their last two meetings of the year.
• The release on Friday of the Labor Department's monthly employment report is likely to show the unemployment rate held steady at 4.1% in October, economists polled by Reuters projected.
• Fed policymakers, however, are expected to take little signal from that employment data because recent hurricanes and an ongoing strike at Boeing likely subtracted as much as 100,000 jobs in the month. That impact will be seen as only temporary rather than a sudden deterioration in the labor market.

(Source: Reuters)