CPI Hot but More Rate Cuts Coming — Evening Brief – 10.10.24
Inflation came in higher than predicted in September, bolstering the growing belief that the Federal Reserve will not only refrain from reducing interest rates by 50 basis points in November, but may also opt not to do so at all.
The US Bureau of Labor Statistics reported a 0.2% increase in the Consumer Price Index (CPI) in September, which was higher than the 0.1% consensus and flat to a 0.2% rise in August. Year-over-year, CPI was higher by 2.4% against expectations for 2.3% and 2.5% in August.
Core CPI increased by 0.3% in September, surpassing expectations of 0.2%, but unchanged from the 0.3% print in August. The core CPI increased by 3.3% year over year, which was higher than the anticipated 3.2% increase and the 3.2% increase in August.
The shelter index rose 0.2%, although it cooled off from 0.5% in August. The index for food, however, climbed 0.4% versus +0.1% the prior month (five of the six major grocery store food group indexes increased). Together, the two indices accounted for more than 75% of the monthly all-items gain.
In addition to the rise in shelter, the Core CPI reflected a jump in medical care, apparel, and airline fares, as well as motor vehicle insurance (up +1.2% in September after rising 0.6% in August and 1.2% in July).
“The good news is that the trend remains broadly disinflationary, but the bad news is that services inflation is still a problem,” said Olu Sonola, Fitch Ratings head of US economic research. “Inflation is dying, but not dead.”
Joseph Brusuelas, chief economist of RSM US, does not anticipate that the Fed’s policy trajectory will be affected by the recent natural disasters or the hotter-than-anticipated inflation data. In a post on X, he indicated that he believes that 25-basis point interest rate cuts are likely in both November and December.
The market is pricing in an 82.2% probability of a quarter-point cut in November and a 0% chance of a 50-basis point cut, compared with a probability of 32.1% a week ago, according to the CME FedWatch tool.
Federal Reserve Bank of New York President John Williams said Thursday he sees additional interest-rate cuts ahead, amid the central bank’s progress in reducing inflation.
“Based on my current forecast for the economy, I expect that it will be appropriate to continue the process of moving the stance of monetary policy to a more neutral setting over time,” Williams said in remarks prepared for delivery at Binghamton University.
“The economy is in a good place,” and “the risks to achieving” the Fed’s dual mandate of stable prices and full employment are “now in balance,” he added.