Economic Update – Smooth Sailing Through to Christmas

Last night (14 Nov) may have been the moment that investment markets finally became satisfied that the US Federal Reserve had managed to control inflation. US CPI came in at the bottom end of expectations and YoY Core CPI is rising by 4.0%. This is the slowest pace of increase since Sep 21. Weaker inflation comes despite the stronger economic backdrop, remember domestic demand grew by an annualised 4.8% in 3Q23 and set to grow by an annualised 2.5% in 4Q23 (according to the Atlanta Fed nowcast). All this suggests the decline in inflation has been more of a function of supply side issues being resolved. From here our US team (Julia Coranado of MacroPolicy Perspectives) forecast inflation to fall further and are expecting Core CPI to reach 2.5% by 2Q24.

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