U.S. stocks and the cryptocurrency market fell ahead of the CPI data release tonight, as the market awaits the results of this indicator to assess the Fed’s pace of interest rate cuts. Minneapolis Fed President Neel Kashkari pointed out that if inflation unexpectedly rises over the next month, the Fed may reconsider pausing rate cuts at its December meeting.
(Background: Bitcoin challenges 90,000 but fails, dropping below 88,000; former Fed hawk suggests that rate cuts may decrease under Trump.)
(Additional Background: U.S. September CPI “exceeds expectations,” intensifying the inflation dilemma! Fed officials: November is not a must for rate cuts.)
All four major U.S. stock indices declined on Tuesday, and Bitcoin failed to reach new highs, stopping short of the 90,000 mark. The market appears to be digesting the rapid rise following Trump’s election victory while awaiting tonight’s CPI data to gauge whether the Federal Reserve (Fed) will cut rates again this year. Overall, market sentiment is largely cautious.
Yesterday, at an investment conference hosted by Yahoo Finance, Minneapolis Fed President Neel Kashkari stated that if inflation unexpectedly surges in the coming month, the Fed may reconsider its rate cut strategy in December. He noted that the market currently anticipates the U.S. October CPI year-on-year increase to reach 2.6%, up from 2.4% in September; the month-on-month increase is projected to be 0.2%, consistent with last month. The core CPI, excluding food and energy, is expected to have a year-on-year increase of 3.3% and a month-on-month increase of 0.3%, both in line with previous values. Core inflation has remained high due to rising housing costs.
Kashkari remarked that housing inflation is “a significant ongoing issue,” but he believes the situation will improve as new leases are signed at lower prices. Regarding the potential impact of Trump’s presidency on the Fed’s interest rate decisions, Kashkari stated that they can only wait and see. However, he expressed skepticism about inflation that might arise from Trump’s new tariff policies, emphasizing that “everything at this point is just speculation.”
During the election campaign, Trump’s proposed comprehensive tariffs, tax cuts, and mass deportation of illegal immigrants may exert new pressure on inflation and further expand the U.S. fiscal deficit. The market generally expects these policies to complicate the Fed’s ability to cut rates. The rationale is that tariffs typically increase the cost of imported goods, while tax cuts could stimulate consumption, both of which may drive prices up. Additionally, deporting illegal immigrants could reduce labor supply, increase wage costs, and consequently lead to higher inflation.
Due to these proposed policies, many economists have already revised their expectations for the frequency and pace of rate cuts next year.
Rate cuts in 2025 may be fewer
Former Cleveland Fed President and hawkish representative Loretta Mester stated at UBS’s annual European conference in London yesterday that the economic policies Trump may implement after taking office, particularly global tariffs, could affect the number of rate cuts from the Fed next year, which may not be as frequent as the market predicted in September. According to a Reuters survey, the market expects the Fed to cut rates by 1 percentage point in the first half of 2025 and by another 25 basis points in the second half, bringing the federal funds rate down to 3%-3.25% by the end of 2025, slightly below the median forecast in the central bank’s dot plot.
Mester anticipates that the number of rate cuts by the Fed next year may be fewer than four, but a 25 basis point cut may still occur at the December meeting. She pointed out that policymakers may gain a “preliminary understanding” of the impact of Trump’s fiscal policies on monetary policy, with specific details expected to become clearer early next year.
Barkin: Fed is well-positioned to respond to various economic scenarios
Richmond Fed President Thomas Barkin stated at an event in Baltimore that “since the economy is currently in good shape, interest rates have moved away from recent peaks but also from historical lows, allowing the Fed to respond appropriately, regardless of how the economy develops.”
Barkin considered two potential economic scenarios:
As election uncertainty diminishes, businesses may restart investment and hiring, allowing the Fed to focus on the risks of inflation.
Alternatively, businesses may lay off workers due to weakened pricing power and compressed profit margins, which would increase the employment risks facing the Fed.
