Analyst for HSBC weighs in on the outlook for Fed interest rates

Analysts at HSBC have predicted that the Federal Reserve will opt to cut interest rates once again at its meeting in December, before keeping borrowing costs on hold over the next two years.

In a note, strategists at the bank flagged that while there are “pockets of inflationary pressure” in the U.S., slower rental price growth “may help counteract to a degree in the coming months.”

The comments come as investors are awaiting the release of key U.S. economic readings that were delayed by a record-long government shutdown.

Nonfarm payrolls data for September is due on Thursday, and will be watched for more insight into the labor market, which is a key consideration for the Federal Reserve.

Fed Governor Waller said on Monday that the central bank should cut interest rates to prevent further deterioration in the sector. But these comments come amid waning bets that the Fed will cut interest rates in December.

The delay of several key labor and inflation readings will see the Fed flying mostly blind into its December meeting, potentially making a hold more likely as the policymakers await concrete evidence to base their decisions on.

Fed Chair Jerome Powell has previously suggested that a rate reduction next month, which would follow two 25-basis point cuts in September and October, was “not a foregone conclusion.”