U.S. monetary policy is falling behind the curve, says BCA Research, and the independent research firm believes more rate cuts are on the way as a result.

“Financial markets are forcing the Fed’s hand and another rate cut looms in December,” the firm suggests in a research note published today.

BCA says that the minutes from the October FOMC meeting noted that the need for a rate cut at that time was a “close call”. It says that the Fed observed “scant evidence of negative spillovers” from housing to the rest of the economy, while credit market strains were moderating.

“Stunningly to us at BCA, upside risks to inflation remained a concern!” it says.

“The rioting in the financial markets this month must be reversing this economic complacency,” BCA declares. “Credit conditions are tighter than they were before the Fed began cutting rates, and strains could be spreading into the prime mortgage market.”

“The financial markets are warning of real economic damage, which will force the Fed to drop its concerns over inflation and provide a significant amount of additional easing,” BCA concludes.