The September Consumer Price Index (CPI) will provide the latest signal on inflation’s path as the Federal Reserve prepares for its next interest rate decision.
With a forecast of 2.3% headline inflation, a drop from August’s 2.5%—the lowest since early 2021—the report is expected to confirm inflation’s gradual retreat.
Month-over-month, consumer prices are projected to increase by just 0.1%, down from the 0.2% rise in August.
On a core basis, which excludes volatile food and gas prices, economists expect a 3.2% increase, unchanged from August.
Core price growth for September is predicted to rise by 0.2%, slightly lower than August’s 0.3% rise.
While inflation is cooling, it remains above the Federal Reserve’s 2% annual target, keeping pressure on policymakers.
The Fed has shifted its focus to the resilient labor market, which, despite rising rates, added 254,000 jobs in September—well above the expected 150,000. The unemployment rate also dipped to 4.1%, down from 4.2%.
This strong jobs report shifted market expectations, with a smaller 25-basis-point rate cut now anticipated in November instead of the earlier forecasted 50-point cut.
According to Citi’s economist Veronica Clark, “We think the bar for the Fed to not cut rates at all in November is high.”
Clark further expects a subdued inflation outlook and weakening labor market trends to push the Fed toward a larger 50-basis-point cut in December after the smaller cut in November.
However, a hotter-than-expected CPI reading could still unsettle markets.
Bank of America’s equity strategist Ohsung Kwon stated that while stocks can handle a slight inflation surprise, a more significant spike could bring uncertainty to the Fed’s easing cycle and introduce more market volatility.
Core inflation remains stubbornly high due to rising costs for shelter and core services like insurance and medical care.
Economists have flagged risks, including higher rent inflation and rising prices in sectors such as used cars and airfares, which could contribute to a firmer core inflation reading for September.
Bank of America economists Stephen Juneau and Jeseo Park anticipate core inflation to be on the “firmer” side for September, but they don’t see this changing the longer-term outlook for disinflation.
They caution, however, that upside risks like East Coast port strikes, higher oil prices, and increasing shipping costs could slow down the disinflationary process more than anticipated.
As the Federal Reserve navigates these economic conditions, business leaders and investors are closely watching for signs of progress.
While inflation may be cooling, the path forward remains uncertain, with several variables still in play.
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