The Fed's slightly hawkish tone brings December rate cut into question

Federal Reserve chair Jerome Powell offered hawkish commentary following elevated US inflation prints. As a result, a December fed rate cut is firmly in the balance. This comes on the back of decent retail sales numbers and somewhat mixed manufacturing data.

Last week, the fed chair said the US central bank is in no hurry to cut rates when the economy is holding up.

The reason: US consumers just keep on spending.

Traders dialled back bets on a December cut to around 55 per cent — from 80 per cent before Powell's comments. Broadly, the economy is humming along nicely, with the holdback in manufacturing being attributed to strikes and storms.

The real question now is if Trump's victory will boost sentiment and the manufacturing industry with his "America first" agenda. The toss-up bets on the fed's rate cut in December reflect Trump 2.0 uncertainty more than Powell's rhetoric at the moment.

The jobs report will be key on 6 December and for now, markets are sticking with the view that a cut is more likely than not. The macro calendar in the coming week looks light and the core PCE deflator will be a key inflationary gauge to look for.

The fed is also conscious of the lowest 60 per cent by income population. Inflation hits them the hardest. Loan defaults are on the rise and the proportion of credit card holders only making the minimum monthly payments has been soaring.

So, for now, the Fed's dilemma is fighting inflation and easing rates in a thin balancing act even before trump risks kick in.