Softer inflation data for October should convince the Federal Reserve to keep interest rates on hold when it meets next month, asset managers said.
Lindsay Rosner, head of multisector fixed income investing at Goldman Sachs Asset Management, said the Fed was unlikely to raise rates in the near future.
"Today's core CPI print was below expectations. The number was expected to be higher due in part to residual seasonality and new source data that was incorporated in the health insurance calculation," she said.
GSAM has $2.7 trillion in assets under supervision.
Brad Conger, deputy chief investment officer at Hirtle Callaghan & Co., concurred that the October CPI figures were "obviously helpful" to the Fed.
The Fed has "been in a pause since July on the theory that the policy lags would feed through," Conger said. "Today's CPI validates that 'wait-and-see' approach."
The Bureau of Labor Statistics reported on Nov. 14 that the consumer price index rose 3.2% from a year ago in October, slightly below economic forecasts, and down from the 3.7% figure recorded in September 2023.
Economists were expecting a 3.3% annualized CPI figure for October, according to financial data firm FactSet Research Systems.
Excluding the volatile food and energy sectors, the core CPI rose by an annualized 4% in October 2023, the smallest such 12-month change since September 2021, partly driven by a 5% monthly decline in gasoline prices.
The Federal Reserve has considered the inflation rate a key factor in its monetary policy.
The Fed's key short-term interest rate is now in a range of between 5.25% to 5.5% — after the central bank kept rates unchanged at the Nov. 1 meeting.
As of the morning of Nov. 14, shortly after release of the CPI data, market participants' pricing of fed fund futures indicated there is an overwhelming 99.8% probability that the Fed will again keep rates unchanged when it issues its next monetary policy decision on Dec. 13, and only an 0.2% probability it will cut rates by 25 basis points, according to CME Group's FedWatch tool.
But Conger also cautioned that it will take more evidence of declining inflation numbers — perhaps five to six more months of cooling CPI data — to give the Fed the confidence to start easing policy.
Hirtle Callaghan & Co. has $18.5 billion in AUM.
At a Nov. 9 research conference hosted by the International Monetary Fund in Washington, Fed Chair Jerome Powell warned that the process of getting inflation sustainably down to the central bank's 2% mandate has "a long way to go."
"We know that ongoing progress toward our 2% goal is not assured: Inflation has given us a few head fakes," Powell said at the conference. "If it becomes appropriate to tighten policy further, we will not hesitate to do so. We will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening."
