US: Growth and inflation data challenge rate-cut pricing – Commerzbank

Commerzbank's Christoph Rieger forecasts US GDP at 3.7% in Q4, above the 3.0% consensus, highlighting broad-based strength from private consumption, private investment and foreign trade. He also projects a 0.36% rise in the core PCE deflator, above the Federal Reserve’s implicit target. This combination could lead markets to reassess expectations for more than two Fed rate cuts in 2026.

Strong GDP and firmer PCE seen

"Today's US GDP data may not quite meet Trump's description in Davos ("growth like, I believe, you'll see very shortly, our country has never seen before, perhaps no country has ever seen before")."

"But at 3.7%, as our economists forecast, the US economy would have registered another strong quarter in Q4, above the consensus expectations of 3.0% - and our colleagues see broad-based strength with contributions in particular from private consumption and private investment (away from residential/nonresidential construction) and foreign trade."

"Yet the goldilocks scenario that Trump is painting ("virtually no inflation, and extraordinarily high economic growth") could get cracks with the other key US data today."

"Our economists calculate a 0.36% for the increase in the core PCE deflator. This would be the highest print since February last year, above the Fed's implicit target and the consensus."

"With this, the market could question the more than two Fed rate cuts that are currently discounted for this year with yields testing the upside ahead of the weekend."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)