RBA: Higher Core CPI Could Drive RBA Pause In November & Await More Data
Oct-28 02:25
The RBA August projections had another 25bp of easing in Q4 based on market pricing. This still allowed underlying inflation to settle close to the 2.5% band mid-point over 2026. Wednesday’s Q3 CPI data will be important for how it impacts the RBA’s inflation outlook which will be key for the 4 November decision. A pause at the November meeting is likely to leave the December meeting live though. Market pricing reflects a good degree of uncertainty around November.
- The AUD OIS is currently not sure with 10bp priced in for November and 17bp by year end but this could move sharply with Q3 CPI.
- Key watch points for CPI tomorrow are as follows: Bloomberg consensus expects trimmed mean to print at 0.8% q/q & 2.7% y/y, which would see a pickup in the 2q/2q annualised rate to 2.8% from 2.6%. This outcome could argue for a hold or a cut dependent on the revised outlook and services inflation result.
- Contained services, core around 2.6-2.7% y/y or below would likely drive further easing, but even 2.8% could see another hold in November as the Board waits for more data, especially given it sees “signs that private demand is recovering”.
- Bullock said the Board was concerned about the rise in some of monthly CPI components, especially services. She noted that it has been sticky overseas and so the change in Q3 market services prices will be monitored. It moderated to 2.9% y/y in Q2 from 3.3%.
- This week Bullock reiterated that labour data are volatile and while the 0.2pp rise in the September unemployment rate to 4.5% was surprising, it could fall again in October. Thus she would like more information. The Board also looks at the 3-month averages and the Q3 unemployment rate only rose 0.1pp to 4.3% while underemployment fell 0.2pp to 5.8%.
- There are a lot of key data before the December meeting which could drive a November pause to wait and see, including surveys but also October jobs on 13 November, Q3 wages 19 November, October CPI 26 November (first full sample monthly CPI) and Q3 GDP 3 December.
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MACRO ANALYSIS: MNI US Macro Weekly: FedSpeak Reaffirms Range Of Cut Views (2/2)
Sep-26 20:16
While we heard the monetary policy views of 6 of 12 current FOMC voters this week, there were no real surprises. We go through all of the relevant FOMC communications in full in our Macro Weekly PDF.
- Chair Powell reiterated that policy is not on a preset course; Gov Bowman and Gov Miran reiterated their more-dovish-than-median views; Musalem and Schmid suggested only limited scope for easing; and Goolsbee eyed neutral rates 100-125bp lower but was “uneasy” with too much front-loading.
- Virtually of the week’s FOMC speakers noted labor market risks had begun to surface, but had varying concerns about inflation. To sum up:
2025 FOMC Voters:
- Powell Reiterates "There Is No Risk-Free Path", Policy Not On Preset Course (Sep 23)
- Gov Bowman: Concerned Will Need Faster And Bigger Cuts (Sep 23)
- St Louis's Musalem: Limited Room For Easing, Policy May Be Close To Neutral (Sep 22)
- Chicago's Goolsbee Eyes Neutral Rates 100-125bp Lower (Sep 23), Uneasy With Too Much Cut Frontloading (Sep 25)
- Gov Miran: Appropriate Rates In 2.00-2.50% "Ballpark" (Sep 22)
- KC Fed's Schmid: Slightly Restrictive Policy The "Right Place To Be" (Sep 24)
Non-2025 Voters:
- Atlanta's Bostic Pencils In No More Cuts this Year, But Watching Data (Sep 22), Longer-Run Dot Suggests Limited Impetus To Cut Further (Sep 23)
- SF's Daly: Likely Further Cuts Will Be Needed To Support Labor Market (Sep 24)
- Cleveland's Hammack: Policy Very Mildly Restrictive, Concerns On More Cuts (Sep 22)
- Dallas's Logan: Time To Move From Fed Funds Policy Rate To Tri-Party Repo (Sep 25)
- Barkin: Jobs Shakier, Inflation Less Troubling (Sep 26)
MACRO ANALYSIS: MNI US Macro Weekly: Too Solid For Comfort (1/2)
Sep-26 20:13
We've just published our US Macro Weekly - Download Full Report Here
- The US economy now appears to be on more solid footing than it seemed a week ago. Versus 45bp in Fed rate reductions through the remainder of 2025 as of last Friday, futures markets now price 40bp. Half of that retracement came Thursday at 0830ET, when Q2 GDP data, initial jobless claims, durable goods orders, and goods trade data all pointed to stronger ongoing GDP growth than previously anticipated.
- Q2 GDP growth was revised up significantly in the 3rd and final reading, to 3.84% Q/Q SAAR from 3.29% in the 2nd reading (consensus had expected this to be unchanged in the 3rd).
- And while that’s in the past, the latest monthly data saw the Atlanta Fed's GDPNow estimate for Q3 jump to 3.9% from 3.3% last week.
- Friday’s PCE data suggested solid consumption dynamics through August (and no nasty surprises in the core inflation data).
- As such, the week’s data almost unambiguously portrayed a better domestic demand story through – and beyond – a volatile first half of the year related to tariff policy shifts.
- That poses something of a quandary for a Fed that has shifted its sights to labor market risks. GDP is not employment, but a case for rate cuts at a time when inflation is still pushing 3% is tougher to make when the economy is growing at close to a 4% real pace and equities remain at or near all-time highs.
- October's cut is no longer such a sure thing as it seemed after the September meeting, with a 25bp ease now priced at 21bp (~84% implied prob), versus closer to 23bp (90+%) at the end of the prior week.
US TSY OPTIONS: BLOCK: Large Nov'25 5Y Risk Reversal, Covered
Sep-26 19:44
- +30,000 FVX5 108.5/109.5 call over risk reversals, 0.5 net vs.
- -18,000 FVZ5 108-31.75 at 1536:10ET
