Is Powell too tiresome? This strategist thinks so By Investing.com

Investing.com — The next Federal Reserve meeting on Nov. 6-7 is likely to see a stronger stance from monetary policy hawks, Yardeni Research strategists said in a note, as September inflation data came in hotter than expected had anticipated.

That challenges the stance of Fed Chairman Jerome Powell and other dovish members of the Federal Open Market Committee (FOMC), who cut interest rates by 50 basis points last month amid concerns about a slowing economy. Strategists at Yardeni note that their credibility has been weakened, especially after the latest jobs report showed further declines in the unemployment rate and record wages.

“Today’s CPI data supports our story that the Fed should not cut the federal funds rate (FFR) at the remaining two meetings this year,” strategists said in a note on Thursday.

Bond market signals seem to align with this outlook. Since the Fed’s 50-basis-point interest rate cut on September 18, interest has climbed from 3.63% to 4.11%, reflecting rising inflationary expectations.

Meanwhile, stocks fell only slightly from new record highs hit yesterday. Yardeni believes that any further rate cuts “would increase the chances of a stock market meltdown.”

The research firm highlighted several key data from the latest CPI report, explaining why the Fed may need to stop its dovish shift.

In late 2022, Fed Chairman Jerome Powell emphasized the importance of supercore inflation (core services inflation, excluding housing) in predicting future trends in core inflation. Thursday’s CPI report showed supercore CPI inflation rose from 4.3 percent to 4.4 percent year-on-year, a “far from ‘mission accomplished’,” says Yardeni.

Transport services, a major driver of services inflation, also rose sharply from 7.9% to 8.5% year-on-year in September. This category includes car rentals, rentals, car maintenance, insurance and public transport. Strategists said rising costs, particularly in car insurance, which rose 16.3% year-on-year, were hitting lower-income households the hardest.

Moreover, housing inflation, which was expected to ease, remains a concern as recent increases in three-month annualized rates point to persistent pressures despite a slowdown in rental price growth.

Energy inflation fell 6.8% year-on-year in September and CPI goods fell 1.3%. However, strategists at Yardeni warn that geopolitical oil risks and a weaker dollar could push headline inflation higher towards the end of the year.

Jobless claims also rose to 258,000 in the week ending Oct. 5, largely due to strikes and severe weather. Non-performing loans also increased by 35,000 to 1.861 million.

Yardeni also points out that Michigan-based automaker Stellantis (NYSE: ) layoffs related to United Auto Workers negotiations and hurricane-related claims in North Carolina and Florida are likely to skew upcoming employment reports for October.