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The August US CPI figures showed a further cooling in price pressures, with annual inflation falling bang in line with market expectations, at 2.5% at a headline level, and 3.2% on the core metric.
The headline metric represents the slowest pace of annual inflation since February 2021.
MoM figures were a little more mixed, rising 0.2% on a headline basis, unchanged from July, though the core pace quickened a touch ti 0.3% MoM.
However, the FOMC have clearly already obtained the requisite confidence in inflation returning to the 2% target over the medium-term, with developments in the labour market now the key determinant of both the pace, and magnitude, of rate cuts, once policy normalisation gets underway in September.
A 25bp cut at that meeting remains the base case, though more rapid cuts after that remain on the cards should incoming jobs data show a further deterioration in labour market conditions.
For equities, focus remains not on what the Fed will do, but what the Fed can do. With 500bp of room to reduce rates, as well as the potential to bring quantitative tightening to an end were conditions to require it, the ‘Fed put’ remains as strong and as forceful as ever. In turn, this should see equity dips remain relatively shallow in nature, and give investors confidence to continue positioning themselves further out on the risk curve.
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