US Inflation Cools in September, Boosting Hopes for Fed Rate Cut
Recent data indicates a moderation in US inflation, potentially paving the way for a Federal Reserve interest rate cut next week. The Consumer Price Index (CPI) for September,released by the U.S. Bureau of Labor Statistics (BLS) on October 24th, showed a 0.3% increase compared to August.This figure fell short of market expectations, which, as compiled by Dow Jones, predicted a 0.4% rise. Year-over-year, CPI increased by 3%, also slightly below the anticipated 3.1%.
A key component of the report, Core CPI - which excludes volatile food and energy prices – rose 0.2% month-over-month and 3% year-over-year. These figures also underperformed expectations of 0.3% and 3.1% respectively, representing the slowest pace of increase in three months. A significant contributor to this moderation was a slowdown in housing cost increases, reaching their lowest level since early 2021.
The CPI release was delayed from its original scheduled date of October 15th due to the recent US government shutdown. Notably,CPI is one of the few economic indicators permitted to be released even during a government shutdown.
The cooler-than-expected inflation data has been interpreted by the market as supportive of a more accommodative monetary policy from the Federal Reserve. Experts now assess the likelihood of a base interest rate cut at the upcoming Federal Open Market Committee (FOMC) meeting as increased.
John Kirshner, head of global securitization products at Janus Henderson, stated to CNBC that the CPI report was “welcome news” and, given its timing following the government shutdown, makes a fed rate cut at next week’s FOMC meeting “virtually certain.”
Following the data release, the S&P 500 index experienced gains, while US Treasury yields and the dollar recovered some lost ground.
Furthermore, expectations for a potential additional interest rate cut in December have also risen.Bloomberg News highlighted that the September CPI figures could significantly influence the Federal Reserve’s monetary policy decisions, particularly if the government shutdown persists and prevents the release of October’s CPI data.
While gasoline prices saw a substantial increase of 4.1%,contributing to the overall price rise,broader inflationary pressures appear to be easing. Food prices rose 0.2%,and overall product prices increased by 0.5%. Year-over-year, energy prices rose 2.8% and food prices increased 3.1%.
Housing costs, which comprise roughly one-third of the total CPI, increased by only 0.2% and 3.6% year-over-year. Service prices, excluding housing, also rose by 0.2%.
Within the durable goods sector, new car prices increased 0.8%, while used car and truck prices declined 0.4%.
Market analysts characterize the CPI report as demonstrating a “delicate balance between price stability and concerns about an economic slowdown,” providing justification for the Federal reserve to consider easing monetary policy.
David Russell, head of global market strategy at Trade Station, noted that while inflation hasn’t completely subsided, it’s no longer at a level to significantly surprise the market, reinforcing the case for the Federal Reserve’s easing policy.