DBS Bank: Core CPI May Slow Further, U.S. Dollar Rally Faces Test

On October 14, DBS Bank analyst Philip Wee stated that Federal Reserve official Williams supports another rate hike by the end of 2026, but is reluctant to acknowledge the market's pricing for further tightening in 2027. Williams also reminded the market that the Fed remains data-dependent, rather than "dependent on individual data points." Monetary policy will be guided by the potential inflation trajectory over the next one to two years, rather than individual data releases.

In this context, today's CPI report should focus more on core inflation, which is expected to slow from 0.3% to 0.2%. Williams believes the forces driving inflation downward remain intact, with price pressures mainly concentrated in the AI and energy sectors, rather than spreading to the broader economy. He sees little evidence of labor-market-driven inflation or an overheating U.S. economy. This distinction is crucial for the U.S. dollar, as its rally since the Fed's September rate hike has largely depended on expectations of further tightening. (Jinshi)