MNI US Macro Weekly: Fed Shifts Hawkish As Disinflation Stalls

MNI (NEW YORK) - Executive Summary

• US “Inflation Week” brought largely in-line results, with sequential core CPI coming in a little lower than expected, and headline CPI and core PPI a little higher than expected.
• But overall the takeaway was that there was relatively little if any disinflationary progress in October, exacerbated by what looks like a small sequential acceleration in the core PCE reading for the month.
• The cumulative effect of surprisingly hawkish Fed commentary combined with the slight upside in core PCE (with a helping hand from solid initial jobless claims among other data demonstrating continued resilience) saw a notable shift in rate cut pricing this week.
• The December FOMC meeting appears to be "live", nearing 50/50 implied probability of a hold at one point Friday morning, versus closer to 20% at the start of the week.
• At the end of this document we highlight two major shifts in FOMC tone this week: one is that a "pause" was introduced as a possibility by a senior FOMC member (Gov Kugler); the other is that there is growing concern over the implications of soaring longer-end rates.
• Neutral rate-talk also dominated, and in a hawkish direction - Dallas Fed's Logan mused that the Fed had already perhaps already reached neutral rates.
• It's probably still the case that the FOMC is still in the "thinking about thinking about slowing rate cuts" stage, which means a December cut is the default. But some of the groundwork for a less dovish rate cut path appears to have been laid since the US election (the potentially hawkish implications of which, FOMC members didn't venture into).
• This week’s heavy data slate gives way to a quieter schedule Nov 18-22, with key macro highlights including flash November PMIs and housing market data, with FOMC speakers also of interest after this week’s shift (including Cleveland Fed Pres Hammack).

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