Ahead of the data release on Friday morning, Fed whisperer Nick Timiraos of the Wall Street Journal tweeted that “although the Fed is not dependent on data points and next week’s decision of 75 basis points seems unlikely To change, another uncomfortably high ECI reading could argue for a somewhat higher terminal rate and could cloud the debate about slowing the pace in December.

Inflation data released Friday morning was close to expectations. The US Core PCE price index, the Fed’s preferred measure of inflation, was 5.1% yoy versus an expectation of 5.2% yoy and a previous reading of 4.9% yoy annual. Although the draw was slightly lower than expected, it was higher than the August draw and its highest level since March. The employment cost index for the third quarter was 1.2% QoQ against an expectation of 1.2% QoQ and a previous reading of 1.3% QoQ.

Based on Timiraos’ tweet and Friday’s inflation data, it seems almost certain that a 75 basis point hike next week is on the cards. However, what does today’s data mean for the December meeting. Remember, just a few days ago, Timiraos wrote an article suggesting that at the next meeting the Fed would discuss whether to reduce the pace of rate hikes to 50 basis points from 75 basis points . Although Core PCE and ECI are roughly in line, today’s tweet mentions “another uncomfortably high ECI reading”. Will the Fed consider a reading of 1.2% an uncomfortably high reading? Additionally, the Core PCE is at its highest level since March (when the Fed started raising rates). As this is the Fed’s preferred measure of inflation, it seems possible that the Fed could stick to its rate hike pace of 75 basis points at the December meeting.

With the FOMC appearing to commit to a 75 basis point hike at the November meeting, the likelihood of a 75 basis point rate hike in December jumped to 40%, according to CME FedWatch. Tool. However, a 50% rating still favors a 50 basis point upside.

Source: WEC

Over a 240-minute period, USD/JPY is the most sensitive to movements in rate expectations. The pair was bid for most of the day, mainly due to the dovish BOJ meeting earlier. However, if the market thinks a 75 basis point rate hike is in the cards for November and December, USD/JPY could rise. Over a 240-minute span, the pair is hovering near horizontal resistance at 147.51. If the pair is rising, next resistance is at the lower trendline of an upsloping channel near 148.75. Above there, the price can move towards the psychological resistance at the round number of 150.00 and then the highs of October 21st.st at 151.95. However, if the pair turns lower, the first support will only exist at the confluence of support from the September 22nd and October 27th highs.e lows between 145.10 and 145.90. Below this, the price may fall to the 61.8% Fibonacci retracement level from the September 22 lows.n/a at the heights of October 21st at 144.78, then the lows of October 4e at 143.49.

Source: Tradingview, Pierre X

Will the Fed consider an ECI reading of 1.2% “uncomfortably higher”? Moreover, the Fed’s favorite inflation measure has returned to levels not seen since March. This should get the Fed’s attention. As it looks like 75bps is a done deal for the November meeting, markets are now looking to the December meeting. Will the Fed pivot and reduce the pace of the hike at this meeting? Or will the economic data by then lead the markets to believe that the terminal rate will be higher?

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