Aggressive Fed easing more like a Christmas wish list rather than the most likely outcome

Deutsche Bank has a research note showing that easing expectations for the Fed remains too aggressive.

• About 200 basis points of cuts are priced in, including the 50 basis points we’ve already seen.
• If the economy is in good shape, a large easing cycle will almost certainly lead to increased inflation, all other things being equal

The note argues that it is not just the Fed’s 50 basis point rate cut that has changed inflation expectations and interest rates recently. We also noticed:

1. High expectations of more aggressive action by the European Central Bank;
2. Increased geopolitical risks and the possibility of China offering significant stimulus, pushing oil and other commodity prices higher after falling in the summer;
3. Robust salary report.
4. Overall strong US economic data, including an unexpected increase in the Consumer Price Index last week

He concluded

• This does not mean that inflation is out of control, but talk of a strong economy, a relatively aggressive easing course by the Fed, and perfectly behaved inflation sounds more like a Christmas wish list than the most likely outcome. One or two of them can be achieved easily but getting all three will be difficult.

Via FedWatch: