US DATA: Firm Import Price Air Fares Shouldn't Materially Alter PCE Tracking

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EXECUTIVE SUMMARY: 

• Norges Bank is unanimously expected to hold the policy rate at 4% on Thursday, in a quarterly decision which includes an updated MPR and rate path projection. The rate path will be the primary focus for markets, and we expect a downward revision relative to September.
• The downward revision we anticipate may shift the balance of risks in favour of 2x25bp cuts next year, versus the single cut embedded in the September rate path. This would align more closely with current market pricing, which embeds around 40bps of easing through 2026
• The implied probability of 2x25bp cuts is likely to be well below 100%, as Norges Bank retains a preference for a cautious easing cycle due to sticky services inflation and only gradually slowing mainland activity. In a similar vein, we think the implied probability of the first 2026 rate cut will tilt in favour of a June move, rather than March.
• We think markets will be more sensitive to a smaller-than-expected downward revision. That’s exacerbated by recent positioning in NOK markets.
• The policy statement is likely to avoid meeting-specific guidance, re-iterating that “the outlook is uncertain, but if the economy evolves broadly as currently envisaged, the policy rate will be reduced further in the course of the coming year.”

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