The US central bank is seen delivering two more quarter-point interest-rate increases before ending its current round of rate hikes in March, after a government report showed inflation continued to slow last month, reports Reuters.
The Fed's preferred gauge for inflation, the personal consumption expenditures (PCE) price index, rose 5.0 per cent last month from a year earlier, slower than the 5.5 per cent 12-month gain as of November, the Commerce Department reported.
Core PCE, which the Fed uses to gauge the underlying momentum of inflation, rose 4.4 per cent from a year earlier, but in the most recent three-month average around 3.2 per cent on an annualized basis.
That cooling has traders betting the Fed will soon wind down its most aggressive policy-tightening in 40 years. Futures tied to the Fed's policy rate are pricing in near certainty for the Fed to raise its benchmark rate to 4.5 per cent-4.75 per cent at its Jan. 31-Feb. 1 meeting, from 4.25 per cent-4.5 per cent now, with another quarter-point hike priced in for March.
Traders see just a one-in-three chance of a further quarter-point increase after that, and after the report firmed up their bets on rate cuts starting as soon as September.
Fed policymakers have signaled they expect rates ultimately to go a bit higher - to just over 5 per cent -- and have said they do not expect to cut rates this year so as to make sure they definitely win the war on too-high inflation.