Deutsche Bank expects Fed rate hike in January 2027 after hot inflation data

Deutsche Bank Expects US Fed Rate Hike in January 2027 on Hot CPI Data

Deutsche Bank’s Outlook on Federal Reserve Rate Hikes

Hotter-than-Expected CPI Data Fuels Rate Hike Expectations

Nov 10 (Reuters) - Deutsche Bank on Tuesday said it expects an additional 25-basis-point interest rate hike from the US Federal Reserve in January 2027, after a hotter-than-expected October inflation reading boosted bets on higher borrowing costs.

"This morning's CPI data continued to show broad-based gains, reinforcing our concerns from earlier this year about the persistence of price pressures," Deutsche Bank said in a note.

Previous Rate Hike Projections and Current Interest Rate Range

The brokerage previously expected the central bank to raise rates in December and March. The interest rate is now in the 3.75% to 4% range.

October CPI Details and Market Reactions

The CPI increased 0.4% last month, above 0.3% estimated by economists polled by Reuters, pushed up by higher costs for food and accommodation. This left the Fed on course to raise interest rates next month.

Traders are pricing in an almost 99% chance of a hike in December, according to the CME FedWatch tool.

Fed Officials’ Comments and Deutsche Bank’s Assessment

Earlier in the day, Fed Governor Christopher Waller said the central bank should raise interest rates by at least 25 basis points next month even if inflation cooled in October. If price pressures accelerated, policymakers should consider a half-percentage-point increase, he said.

"Governor Waller's comments this morning opened the possibility of a 50bps rate increase in December. While we would not rule it out, a larger increment is not our base case," Deutsche Bank said.

(Reporting by Kanchana Chakravarty in Bengaluru; Editing by Sahal Muhammed)