For 2027, the rate debate is no longer about when cuts start
ING puts US core inflation at 0.3% a month and sketches three paths for 2027 yields. A Fed official is talking about a hike instead. Canada expects its rate to sit still.
- ING expects US core CPI to come in at 0.3% month over month, a level ING says is too high to support lower interest rates. m:…8089
- ING's base case has 10-year Treasury yields rising to 5.25% to 5.5% before easing to 4.5% to 4.75%, while its risky scenario puts US 10-year yields at 6%. m:…8088
- Waller said a 50 basis point hike in the policy rate should be considered if October CPI inflation is around 0.3% or higher. m:…4063
- The Bank of Canada's survey puts the median policy rate forecast at 2.75% for the fourth quarter of 2028, with 52% of respondents seeing risks skewed to a higher path. m:…9948
The hot number
ING expects the next US core CPI reading to come in at 0.3% month over month, and ING says that pace is too hot to support lower interest rates. The note adds that a 10-year Treasury yield of 5% looks relatively attractive to investors, and that markets are rotating attention between AI and inflation concerns, keeping volatility high. The direct pass-through from oil to interest rates has weakened compared with a few months ago, according to ING, so cheaper oil is doing less work for the rate outlook than it used to. m:…8089
That single monthly number carries a lot of weight because a Federal Reserve official is now talking in the other direction. Waller said the US economy is growing strongly but inflation remains too high, and he said a 50 basis point hike in the policy rate should be considered if October CPI inflation is around 0.3% or higher. The speech also described the labour market as being in a low-hire, low-fire equilibrium, stable on the surface but losing efficiency underneath. Put together, the message is that strong growth is not the problem, and persistent price rises are. m:…4063
Three paths for 2027
ING sketches three paths for 2027. Its base case expects 10-year Treasury yields to rise to 5.25% to 5.5% before easing to 4.5% to 4.75%. The risky scenario projects US 10-year yields at 6% and German yields at 4%, while the bold scenario anticipates systemic stress triggering de facto yield curve control. ING identifies inflation as the primary threat to the 2027 economic outlook, and says second-round inflation concerns could push 10-year euro swaps above 4%. It also says market pricing for an ECB terminal rate above 3% is excessive. m:…8088
The wider ING outlook for 2027 frames the same tension as a contest over power, covering politics, energy, technology and trade. ING says US tech giants have invested hundreds of billions in data centres, chips and models, and expects the AI investment surge to ease in 2027. Falling energy prices are a prerequisite for an AI-boom soft landing, according to ING, and if energy prices remain high, central banks may be forced to raise rates aggressively. AI adoption is spreading into grids, power plants and infrastructure, while households and traditional industry are competing with AI for energy. m:…0977
The measurement problem
UBS adds a reason to treat the next inflation print with care. It says the element of guesswork in calculating inflation has risen recently, because the absence of October 2025 data following a government shutdown complicates current inflation comparisons. Consumers likely perceive inflation as higher than reported, UBS says, and consumers place undue importance on high-frequency purchases when assessing inflation. There have been four temporary inflation shocks since the pandemic, according to UBS, and there have been no second-round inflation effects such as a wage-price spiral, which UBS says argues against a structural inflation bias. Oil prices remain low. m:…1311
Canada offers a calmer counterpoint in the Bank of Canada survey of market participants. The median forecast for real GDP growth in Canada is 1.6% for the end of 2026 and 1.8% for the end of 2027, while the median forecast for headline CPI inflation is 3.0% for the end of 2026 and 2.0% for the end of 2027. The median forecast for the Bank of Canada policy interest rate is 2.75% for the fourth quarter of 2028, and the median estimate for the long-term nominal neutral rate is also 2.75%. But 52% of respondents believe the balance of risks for the policy rate is skewed to a higher path, and 92% characterise the current level of Canadian GDP as a negative output gap. m:…9948
What to watch
Trade is the swing factor in the Canadian survey: 88% of respondents identified the easing of trade tensions as a top upside risk to growth, and the same share identified an increase in trade tensions as a top downside risk. In Europe, ING says the continent faces a structural disadvantage due to higher energy costs compared with competitors, and a crowded election calendar in 2027. ING also says 2027 could be a benign year for the global economy if politics, AI investment, stock markets and central banks align. That is a long list of conditions, and the inflation numbers in this set of notes are the first test of whether they hold. m:…9948 m:…0977
What is still unresolved
- Whether October CPI actually lands around 0.3%, the threshold Waller named for considering a 50 basis point move.
- Whether energy prices stay low enough to give central banks room, as ING says a soft landing requires.
- Whether the Canadian survey's higher-rate risk skew proves right, or the 2.75% rate holds through 2028.
Provenance by Synorb. Every claim links to its source. This story was written by an agent from the Manifests listed below. Read the methodology and limitations, or send a correction.
Free to reuse, including commercially. Credit “Hanging Context, with provenance by Synorb” and link to this story. Keep the cited Manifest ids. Reuse terms v1.