US inflation meets expectation

Next week, the US Federal Reserve is anticipated to announce its first interest rate cut since the hikes of 2022. Market expectations strongly suggest a reduction is likely, though the exact magnitude of the cut remains uncertain. Today's US inflation report met forecasts, with both the expected and actual core CPI figures at 3.2%. With inflation coming under control and the economy not showing significant weakness, the market's reaction to this data indicates increased confidence in a 0.25% rate cut next week. This is evidenced by an initial slight decline in US equity markets and a rise in US bond market yields. It is expected that a more substantial 0.5% cut would be reserved for scenarios where there is greater concern over significant weakening in economic activity that requires more immediate action. For now, the prevailing conditions indicate a lower likelihood such a severe adjustment is necessary, but the Fed have stated they are playing close attention to the labour market for weakness.