The USA PCE price index has rebounded year-on-year for two consecutive months, and the United Kingdom CPI inflation has also jumped from 1.7% in September to 2.6%, exceeding the target level of 2%. Currently, traders expect the Federal Reserve to cut interest rates once next year, with a 50% probability of a second rate cut, whereas a month ago, expectations were for two rate cuts; it is anticipated that the Bank of England will cut rates twice next year, a decrease from the four rate cuts expected in October.
Inflation issues are "more tricky" than expected, as central banks in the USA and Europe announce to slow down interest rate cuts.
On Wednesday local time, the Federal Reserve cut interest rates by 25 basis points as scheduled, but Chairman Powell leaned dovish at the post-meeting press conference, mentioning four times that the Federal Reserve's policy remains "significantly restrictive" and disagreed with the notion that the federal funds rate is close to neutral.
On Thursday, the Bank of England maintained the interest rate level while expecting inflation to continue to rise in the short term, stating that policies still need to "remain restrictive for a sufficiently long period," and a "gradual" lowering of interest rates is reasonable.
Analysts say the main reason the central banks of the United Kingdom and the USA are slowing down interest rate cuts is the signs of rising local inflation and the ongoing uncertainty surrounding the policies of newly elected President Trump, adding uncertainty to the global economy and inflation outlook.
Public data shows that the year-on-year growth rate of the U.S. PCE Price Index rebounded for two consecutive months to 2.8%, while the UK's CPI inflation jumped from 1.7% in September to 2.6%, exceeding the target level of 2%.
Concerns over inflation and interest rate cut prospects have driven the sell-off in the U.S. and UK bond markets in recent weeks. This week, the U.S. 10-Year Treasury Notes Yield reached the highest point since May at 4.59%.
Andrew Pease, Chief Investment Strategist at Russell Investments, stated:
"Investors are currently concerned that unless inflation completely falls back, the pace of easing monetary policy will significantly slow down."
In recent weeks, investors have been reducing their bets on the extent of interest rate cuts. Currently, traders expect the Federal Reserve to cut rates once next year, with a 50% chance for a second cut, while expectations a month ago were for two cuts; the Bank of England is expected to cut rates twice next year, down from the four cuts anticipated in October.
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