U.S. inflation may be on a path in which it likely won’t budge much through next March, adding a new wrinkle to the market narrative that the Federal Reserve is likely done with raising interest rates.
One policymaker, Federal Reserve Bank of Richmond President Thomas Barkin, said on Friday that his view on whether to hike rates again will depend more on the inflation data than on a softer labor market.Trader Gang Hu of New York hedge-fund firm WinShore Capital Partners, said he expects Fed officials to “sit and wait”, much like they did when the central bank kept rates above 5% for more than a year between 2006 and 2007, before cutting them.
On Friday, the Fed-is-done trade took off again after a weaker-than-expected October jobs report and downward revisions to the previous two months gave greater credence to the idea that the labor market is softening. With investors counting on further weakening in the economy to pull down inflation, all three major stock indexes DJIA COMP SPX headed for another day of gains in New York afternoon trading on Friday, as Treasury yields plunged.
For the Fed, “the goal posts have moved,” said Derek Tang, an economist at Monetary Policy Analytics in Washington. “When inflation was really high, the Fed was worried that it was not falling quickly enough. Now, they’ve made it quite clear that as long as inflation doesn’t rise again, they’re OK with it, as long as they think it will fall at some point.”