U.S. Inflation Surprise Seals Another Fed Rate Cut
Inflation rose a slightly softer 0.3%. On an annual basis, prices climbed 3%, below the market’s 3.1% estimate.
Quick overview
- The U.S. consumer inflation rose less than expected in September, with a monthly increase of 0.3% compared to the forecasted 0.4%.
- Annual inflation climbed to 3%, slightly below the market estimate of 3.1%, marking the highest level since February.
- Core inflation, excluding food and energy, rose 0.2% in September, with a year-over-year increase of 3%.
- Market expectations for a Federal Reserve interest rate cut next week have strengthened, with a 99% probability now priced in.
The report was released two weeks late due to the ongoing budget paralysis affecting the U.S. federal government.
U.S. consumer inflation rose less than expected in September, both on a monthly and annual basis. As a result, another interest rate cut by the Federal Reserve (Fed) next Wednesday is now seen as almost certain.
Economists had forecast a 0.4% increase in the Consumer Price Index (CPI) for the month, matching August’s reading. Instead, inflation rose a slightly softer 0.3%. On an annual basis, prices climbed 3%, below the market’s 3.1% estimate.
Even so, inflation accelerated from August’s 2.9% year-over-year rate, reaching its highest level since February, according to data from the Bureau of Labor Statistics, which delayed the release due to the partial government shutdown.
Excluding food and energy—the index’s most volatile components—core inflation rose 0.2% in September after a 0.3% increase in August. Core CPI climbed 3% year-over-year, compared to 3.1% in the previous month.
Awaiting the Fed’s rate cuts
The report did little to shift expectations regarding the Fed’s rate-cutting trajectory, as the softer-than-anticipated readings reinforced market confidence that the central bank will lower rates next week and again in December in response to a weakening labor market. According to CME’s FedWatch tool, markets are pricing in a 99% probability of a rate cut next week.
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