Assessing the Implications of the US CPI Reading on Fed Monetary Policy| FXMAG.COM

The recent US Consumer Price Index (CPI) reading has caused some ripples in the market, prompting discussions on its implications for future monetary policy by the Federal Reserve. We reached out to Marco Turatti, an expert in the field, to shed light on the matter.

According to Turatti, the CPI numbers came as a downside surprise, with both the headline and core components showing a decline on both monthly and annual bases. This decline in prices has been even faster than the previous rise, with the Producer Price Index (PPI) leading the way. Despite the rally in equities and bonds, Turatti notes that there has been minimal change in rate expectations. The likelihood of a 25 basis points hike this month remains unchanged at 92%, and the terminal rate is only down by 3 basis points to an expected level of 5.37% by November.

FXMAG.COM:

Please comment on the US CPI reading. What does it mean in terms of further Fed monetary policy?

Marco Turatti:

The CPI number yesterday was a downside ''surprise'' in both its headline and core components, both on a monthly and annual basis. The decline in prices is even faster than the previous rise, with the PPI leading the way. Despite the equity and bond rally, very little has changed in terms of rate expectations: the chance of a 25 bps hike this month is unchanged at 92%, as is the terminal rate, down only 3 bps to the 5.37% level expected for November (meaning a second hike is not yet priced in). Prices are going down but wages (and second hike effects) may worry: their real growth is now at the highest since March 2021 (1.2%).

Marco Turatti

HFM Analyst

After working for about 10 years in institutional trading rooms across Europe, Marco entered the FX sector as an analyst leveraging his knowledge of the financial markets. With a degree in Economics, from 2007 onwards he has constantly -and sometimes obsessively- studied and improved his trading and risk management techniques through active and direct investments.

He is a firm believer in the need to know completely the securities one is dealing with, to always have a plan B ready, to build a macro view from which to derive the micro plan of action and -above all- to be strict with the rules one has set oneself, without taking anything personally.

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