Status: 12/13/2022 3:33 p.m
High US inflation weakened more than expected in November. The inflation rate fell from 7.7 to 7.1 percent. This means that the Fed is only likely to decide on a small rate hike tomorrow.
Inflation in the United States continued to fall ahead of the Fed’s final meeting this year, fueling speculation of smaller rate hikes. Consumer prices rose 7.1 percent in November, the Labor Department said in Washington today. Experts polled by Reuters had expected a slightly smaller slowdown to 7.3 percent from 7.7 percent in October.
Fifth consecutive decline
The decline is the fifth in a row, raising hopes that the US may be past the peak of inflation. In June, the inflation rate for goods and services was 9.1 percent. Core inflation – i.e. excluding volatile energy and food prices – fell from 6.3 to 6.0 percent. Here, too, the decline was stronger than expected.
Nevertheless, the inflation rate is still well above the Fed’s target of 2.0 percent. Tomorrow the US monetary authorities will again decide on the key interest rate. The weakening of inflation is likely to encourage them in their intention to raise key interest rates less than recently.
Although the central bank does not yet see the fight against inflation as won, it intends to scale back somewhat when it comes to raising interest rates. The financial markets are expecting an increase of half a percentage point – to a new key interest rate range of 4.25 to 4.50 percent. The US monetary authorities had previously raised the key monetary policy rate by 0.75 percent four times in a row.
“Base effect will get even bigger”
“After this inflation data, a sigh of relief should be felt from the ranks of the US central bank,” said Dirk Chlench from LBBW. It is now almost certain that the Fed will not decide on another ‘jumbo’ interest rate hike of 75 basis points at its committee meeting tomorrow. Even an interest rate hike of just 25 basis points is no longer entirely out of the question.
Thomas Gitzel, chief economist at VP Bank, is also certain that the Fed will announce a smaller rate hike of 50 basis points. The interest rate high has now almost been reached. The expert believes that inflation will continue to fall steeply in the coming months. “As shown by the five major bursts of inflation between the 1940s and 1980s, the inflation rate falls rapidly again after a significant rise.”
Ulrich Wortberg from Helaba sees it similarly: “The base effect due to the price surge in November 2021 is noticeable. This effect will last until June 2023 and will become even greater.” Therefore, it should not come as a surprise if the inflation rate in the USA falls gradually in the coming months.
DAX above 14,600 points for a short time
According to the numbers, the US dollar fell across the board. US government bonds reacted with strong price gains. The futures contract for ten-year bonds (T-Note Future) rose by 1.13 percent to 115.11 points at the start of trading. Conversely, yields on ten-year government bonds came under significant pressure.
The stronger decline in the inflation rate was well received on the stock exchanges. The fact that the Fed could now take its foot off the gas gives investors a sigh of relief. The leading US index Dow Jones Industrial started trading with an increase of almost 1.7 percent to 34,568 points. The technology selection index Nasdaq 100 even shot up 3.3 percent.
In Germany, too, the surprisingly strong decline in the inflation rate drove the stock markets. Investors had previously shown themselves to be a little braver, but after publication, the DAX began to soar. The stock market barometer shot up by up to 2.3 percent at times and was above the 14,600 mark for the first time since June.