Bank of America pushes US rate rise to December

Yet many economists, including Goldman Sachs, expect the US economy to slow, perhaps “significantly”, in the final three months of 2023, reflecting the impact of strikes by autoworkers, the resumption of student loan repayments and the spike in energy prices.

One other concern is the threat of a federal government shutdown because it could disrupt data availability going into the December meeting.

“We have argued previously that the Fed is unlikely to hike if it is flying blind,” BofA’s Mr Gapen said. “But policymakers would be in a particularly sticky situation if the government shuts down after another four weeks of robust data. In this case, rate hike pricing would probably move out into January.”

However, Oxford economist Bernard Yaros said his baseline is that the Fed has finished its rate-rising cycle and he’s already looking to when rates will start to ease.

“The timing of the first rate cut remains highly uncertain,” Mr Yaros also said. “Given the stubbornness in supercore inflation, the Fed will need to observe more appreciable softening in labour market conditions to be confident that core PCE inflation is falling sustainably back to its 2 per cent target.”

LPL Financial chief economist Jeffrey Roach said he believes the US economy is slowing enough that “the markets are overpricing the likelihood of more rate hikes”.

While markets clearly struggled to interpret Fed chairman Jerome Powell’s comments this week, Mr Roach said the chairman made clear to him that policymakers will proceed carefully the next several months.

Mr Roach said inflation is easing and it’s reasonable to expect inflation to ease further in coming months. “By the end of the year, the inflation trajectory should be clearer for both policymakers and investors.”

In addition, Mr Roach said investors should pay less heed to whether the US enters recession if consumers buckle as so many economists have been expecting.

“A shallow recession would likely provide a boon for the domestic markets, as it would increase the odds of the Fed cutting rates and bring the labour market into better balance. History shows markets tend to rally as the Fed pivots away from a tightening bias.”