Wholesale Prices Edge Up in October, Supporting Expected Rate Cut
The latest producer price index (PPI) report from the Bureau of Labor Statistics reveals a modest 0.2% increase in wholesale prices for October, aligning with market expectations. This subtle rise suggests that the Federal Reserve may proceed with another interest rate cut in December.
Moderating Inflation Trend
Despite the PPI exceeding the Fed’s 2% inflation target, the overall trend indicates that price increases are slowing down. Isolated factors, such as a 3.6% surge in portfolio management prices, are driving inflation. Services led the PPI increase, rising 0.3% for the month, while food and energy prices declined by 0.2% and 0.3%, respectively. Goods prices experienced a slight 0.1% uptick after two consecutive months of decline.
Market Reaction and Rate Cut Expectations
The news had a limited impact on markets, with stock futures indicating a mixed open and Treasury yields holding steady. Traders anticipate the Fed will implement another quarter percentage point rate reduction at the December 17-18 meeting, with a 76.1% probability according to the CME Group’s FedWatch gauge.
Layoffs Continue to Moderate
In related economic news, the Labor Department reported a decline in layoffs, with initial unemployment benefit claims totaling 217,000 for the week ended November 9. This marks a 4,000 decrease from the previous period and is slightly below the 220,000 estimate. Continuing claims also fell by 11,000 to 1.873 million.
Economic Outlook
The PPI report and labor market data suggest that the economy is experiencing a gradual slowdown. As the Fed navigates the delicate balance between growth and inflation, another rate cut in December seems increasingly likely. However, market expectations indicate a slower easing pace through 2025.
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