Weak Inflation May Feed Fed Pause Theory

Expectations of weak inflation numbers from this week's Consumer Price Index (CPI) may feed into the growing sentiment that the Federal Reserve will pause sooner rather than later, according to Mike Englund, chief economist at Action Economics, a bond and currency market consulting firm.

  • 15 Oct 2004
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Expectations of weak inflation numbers from this week's Consumer Price Index (CPI) may feed into the growing sentiment that the Federal Reserve will pause sooner rather than later, according to Mike Englund, chief economist at Action Economics, a bond and currency market consulting firm.

Englund predicts the September CPI will increase by 0.1% for both the core and overall CPI, which would be equal to August's increase. The market consensus calls for a bump up of 0.2%. "I think the market outlook for the next three or four meetings will be that the Fed will pause at the meeting after next," Englund said.

Separately, The Federal Reserve Bank of Philadelphia's Business Outlook Survey will be released on Friday. The survey is one of the first indicators of manufacturing sentiment to be published each month and gives the bond market an idea of where the other manufacturing surveys will fall. It is also ultimately used to predict the Institute of Supply Management's report, according to Anthony Chan, managing director and senior economist for JPMorgan Fleming Asset Management.

Chan's outlook for the survey is for a strong rebound of 22 from 13.4. The consensus is for a rise to 19. He predicted the survey numbers could move yields on the 10-year Treasury three to five basis points up or down. "If the low number of 13.4 is maintained, the bond market would feel very complacent with low yields," Chan said.

  • 15 Oct 2004

All International Bonds

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4 Goldman Sachs 171,499.26 554 6.03%
5 Barclays 169,046.60 646 5.94%

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3 Bank of America Merrill Lynch 23,128.33 61 6.29%
4 BNP Paribas 19,315.94 110 5.26%
5 Credit Agricole CIB 18,706.93 106 5.09%

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3 UBS 11,302.86 45 7.09%
4 Morgan Stanley 10,864.95 59 6.82%
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