Investing.com — While recent economic data has shifted market expectations toward the Federal Reserve potentially pausing its rate cuts, conditions for such a move remain stringent, Deutsche Bank strategists said in a note.
Following the Fed’s 50-basis-point reduction in September, strategists note a pivot in sentiment, with speculation on when the Fed might skip a meeting.
However, Deutsche Bank’s policy rule analysis highlights that further reductions are feasible under the current economic conditions, with the Fed likely to implement a 25-basis-point cut in December, keeping rates within the upper end of policy rule prescriptions.
For the Fed to consider pausing, the bank’s strategists outline two primary conditions. First, inflation would need to prove “stickier,” with core PCE inflation consistently rounding to 0.3%, signaling persistent price pressures that could make further cuts less advisable.
Second, downside risks to the labor market would need to diminish, with evidence of stable or improving indicators like payroll growth, a steady unemployment rate (targeted at 4.1% or lower), and a recovery in other labor metrics such as the quits and hiring…
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