Deutsche Bank said the Federal Reserve's 2027 rate path could turn more hawkish if the labor market becomes a renewed source of inflationary pressure and rental price disinflation reverses, two risks the bank called plausible outcomes for next year. Markets have recently moved to price a peak federal funds rate above 4.80%, equivalent to nearly 100 basis points more of rate hikes, while Deutsche Bank's base case remains for 50 basis points more, with 25-basis-point increases at the December and March meetings; the bank said a total of 100 basis points was also plausible. On the labor market, Deutsche Bank cited early evidence of more noticeable tightening, with payroll gains exceeding the breakeven rate and the Kansas City Fed's labor-market momentum index pointing to further tightening in coming months, and said further upside to Fed pricing would be warranted if that coincides with an acceleration in wage growth. On rents, year-over-year primary rent growth, which peaked near 9% in 2023, has slowed toward 2.75%, but private-sector estimates suggest rental price inflation has started to drift higher and that CPI and PCE rental inflation are likely to firm next year, at least at the margin. Deutsche Bank said that if both risks materialize, the probability of more Fed tightening than 75-100 basis points in total would rise considerably.
Deutsche Bank AktiengesellschaftDeutsche Bank is the source of the Fed rate-path analysis, not a subject of company-specific news.
