The Federal Reserve is expected to continue with rate cuts despite higher-than-expected inflation data.

The core Consumer Price Index (CPI) increased by 0.3% month-over-month for the second consecutive month, resulting in a year-over-year rate of 3.3%. This has caused a reevaluation of rate cut expectations, with the CME FedWatch tool indicating a decrease in the likelihood of a 50 basis point cut and an increase in the odds of no cut.

However, UBS maintains that the overall trend of inflation is downward, with the headline CPI easing to 2.4%, the lowest level since 2021. Shelter costs have also moderated significantly. Federal Reserve officials, including John Williams from the NY Fed and Austan Goolsbee from Chicago, have expressed confidence in the ongoing decline of inflation. The FOMC minutes reveal a consensus among policymakers to gradually move towards a neutral stance based on favorable data. Market participants are now closely monitoring upcoming Personal Consumption Expenditures (PCE) data, which will be released on October 31, 2024, to confirm or challenge the recent CPI figures.