The three-month annualized rates showed some cooling, down to 1.6% from 2.1% for all items, having peaked at 2.6% in July. Excluding food and energy, the annualized rate slipped to 1.9% from 2.0%, lowest since last October, its peak being 2.7% from back in March. That will be little excuse for the Fed, which is looking down the road to a time when full employment should lead to rising wages.
Energy prices were up a hefty 2.9%, explaining the entirety of the difference between the headline and core, as food prices were flat. The most notable category within the core was shelter costs, about a third of the total, which were up 0.35%. That series has been heating up over the past several months, explaining a significant amount of the difference between CPI and the Fed's preferred PCE, which gives a lower weight to shelter. The medical care index rose just 0.2%, however, its slowest appreciation in six months, and that category is given more weight in the PCE numbers.
The markets anticipate that the Fed will keep rates steady at its November meeting and then hike rates at its upcoming meeting in December.
The USD stepped back on Wednesday after U.S. consumer prices showed a moderation in underlying , prompting markets to trim bets on a December rate hike. Fed fund imply around a 65% probability of the raising interest rates by December, down from 70% ahead of the U.S. CPI data.
Bank of Boston President Eric Rosengren said the U.S. is already running the economy hot enough to overshoot his estimate for the lowest sustainable level of unemployment and to reach its goal for 2% . Rosengren said this strategy has helped bring more people into the labor force, but if pushed for too long risked triggering higher or asset price bubbles that would force a more severe reaction from the Fed. Rosengren was one of three members of the Federal Open Market Committee to dissent in September when the panel opted to leave rates unchanged, joined by Cleveland President Loretta Mester and Esther George of Kansas City.
The EUR/USD stabilizes just below 1.1000. Monday's two-and-a-half-month low of 1.0964 is an important now. A break of that level could open the way for a test of 1.0912, a low marked on June 24 in the wake of the Brexit vote. Tenkan and kijun lines are negatively aligned and the EUR/USD is capped by 7-day and 76.4% fibo of June-August rise. But plays a minor role now. The EUR is weighed by wariness ahead of the European Central Bank's policy meeting on Thursday. The is widely expected to keep its policy unchanged with any decisions on the future of its asset purchase scheme expected to be deferred until December. We do not think that the meeting will contribute to currency headwinds - we think the risk rather lies to the upside for the EUR/USD
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