Rising US inflation expected to support Fed’s prolonged higher rate stance

Underlying US inflation is seen rising at a monthly pace that corroborates the message from central bankers that interest rates will need to stay higher for longer.

The consumer price index excluding food and fuel, a measure favored by economists as a better indicator of underlying price pressures, is seen increasing 0.3 per cent for a second month. On an annual basis, the core CPI is projected to cool, but that’s a reflection of base effects: the index in September of last year rose the most since 1982.

Resilient demand in the world’s largest economy, bolstered by unrelenting job growth, has complicated Federal Reserve efforts to get inflation down to its preferred level.

While easing, price pressures are nonetheless proving sticky “- a reason why Fed officials have been vocal about the need for their benchmark rate to remain elevated for an extended period. That message has resonated in credit markets, where Treasury yields have recently spiked.

Minutes of the Fed’s September meeting, due on Wednesday, may help shed light on how much central bankers are leaning toward raising interest rates again before the end of the year. The next policy decision comes on November 1.

A slew of US central bankers will speak in the coming week, including Vice Chair Philip Jefferson. Governor Christopher Waller and regional Fed presidents Lorie Logan, Raphael Bostic, Neel Kashkari and Susan Collins also speak.

On Wednesday, the government’s producer price index is expected to be consistent with more moderate wholesale inflation.

“The blowout September jobs report didn’t settle the debate about whether the Fed is done hiking rates. Two critical upcoming economic indicators “- CPI and the University of Michigan consumer-sentiment survey “- may give a more definitive read. We expect September core CPI inflation to come in somewhat higher than consistent with the Fed’s 2% mandate, while higher gasoline prices may have pushed up short-term inflation expectations in the preliminary UMichigan survey for October," said economists Anna Wong, Stuart Paul and Eliza Winger. 

No key interest-rate decisions are scheduled in this week as the global central banking community convenes in the Moroccan city of Marrakech for annual meetings of the International Monetary Fund and the World Bank.

Aside from multiple events and speeches featuring leading monetary officials, the IMF’s World Economic Outlook, featuring a new round of forecasts, will be released on Tuesday.