Next Wednesday, the FOMC will announce its decision on monetary policy. Rabobank analysts They point out that it is increasingly likely that the Fed will slow down its cycle of increases to 25 basis points.

The decline in inflation has increased the probability of minor increases

“The next FOMC meeting, on January 31 and February 1, is being held against the backdrop of falling inflation and signs of a weakening economy. In addition, the annual turnover of bank presidents is expected to regional voters will result in a more moderate set of voters. Therefore, it is increasingly likely that the Fed will slow its rate hike to 25 basis points on February 1.”

“Today’s December PCE deflator data was largely in line with market expectations and confirmed what we already knew from the CPI data, which is that the inflation peak is behind us, unless we get new inflationary impulses, such as new negative supply shocks or the spiral of prices and wages getting out of hand Headline PCE inflation, which is the inflation measure of choice for the Fed, slowed to 5.0% year-on-year and core inflation fell to 4.4%.

“We continue to think that based on the fading inflation momentum, the FOMC is likely to stop at a 4.75-5.00 target range and pause for the remainder of the year.”

“We continue to see upside risks to inflation and the fed funds rate later in the year if further negative supply shocks occur and/or the wage-price spiral spirals out of control.”