The Federal Reserve is seen holding off on any interest-rate cuts until at least May of next year, after a government report on Tuesday showed consumer prices unexpectedly edged back up in November.
Futures contracts tied to the Fed policy rate now reflect bets the U.S. central bank will lower the policy rate to a range of 5%-5.25% in May, with further cuts to come later in the year.
Before the report, which showed the consumer price index rose 0.1% last month from October, traders had been more convinced that cooling inflation would allow the Fed to end its hold on the policy rate earlier. But after the report they slashed what had been a nearly 50% chance seen of a March rate cut to about 40%.
"After all the hopes and chatter around near-term rate cuts, today’s CPI report is a little bit of a mood dampener," said Seema Shah, chief global strategist at Principal Asset Management.
Traders continue to bet on a total of about four rate cuts next year as the Fed reduces borrowing costs in line with what's expected to be easing inflation. The Fed targets 2% inflation; the CPI's year-over-year increase came in at 3.1% in November.
Fed policymakers gather Tuesday and Wednesday for their last meeting of the year, and are universally expected to leave rates where they are in the 5.25%-5.5% range. They'll also publish projections which will show their own views about the likely future path of rates.
