The continued strength of core inflation in September has sealed another 75bp rate hike from the Fed at the November FOMC meeting and raises the chances of that aggressive pace of tightening continuing in December too. Nevertheless, the more hawkish the Fed acts over the next few months, the more confident we are in our forecast that the economy will fall into recession, helping to drive inflation lower next year. With goods shortages easing dramatically, and the drop in job openings and slowing of wage growth suggesting that the labour market is already cooling, we expect rising unemployment will add to that disinflationary pressure. The upshot is that, although inflation continues to surprise on the upside, we still think the Fed will be cutting rates again before the end of next year.
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