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US CPI inflation hotter than estimates, but Fed expected to press on with 25bps cut at November meeting

Journalist: John Choong (Head of Markets and Research), Newspage

ended 10. October 2024

Inflation continues to cool in the US, as the latest Consumer Price Index (CPI) data showed that headline inflation feel again in September, to 2.4% from 2.5%. However, this was above consensus estimates of 2.3%, whilst core inflation remains ticked up to 3.3% from 3.2%. On a month-on-month basis, though, both headline and core inflation remained sticky, with both the headline and core rates stagnant at 0.2% and 0.3%, respectively.

Nonetheless, supercore inflation, which strips out the volatile elements of food, energy, and housing costs, did see some encouragement, falling to 4.3% on a year-on-year basis, from August's 4.5%. Although, this was not helped by the fact that the month-on-month print ticked higher to 0.4% from 0.3%.

As of 2:00 PM BST (9:00 AM EST), the CME Fed Watch Tool places the odds of a 25bps rate cut in November at c.85%, and a c.15% chance of a no-cut scenario. This is in comparison to c.75% odds of a 25bps rate cut and c.25% odds of a no-cut prior to the release of the CPI data.

Newspage asked analysts, economists, and traders for their thoughts on what this could spell for the odds of a November rate cut, whether inflation has been slain, and whether there are any risks to any inflation shock.

3 responses from the Newspage community

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Editor
Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
The Fed's game of economic whack-a-mole continues, with a new source of inflationary pressure popping up faster than they can swing. This higher-than-expected print has caught many off guard, despite headline inflation still continuing to cool, in line with previous months. However, this surprise will likely have ramifications for the Fed's monetary policy outlook, following such an aggressive dovish stance last month.

Consequently, the disappointing figures could prompt the Fed to reassess its rate cut timeline and consider maintaining higher rates for longer. The prospect of higher rates will strengthen the US dollar against major peers, however equity markets are likely to experience increased volatility, especially in growth sectors that are more vulnerable to interest rates. Additionally, treasury yields may rise sightly in response to the inflation data, reflecting the market's reassessment of the rate-cutting path.
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Platinum
John Choong
Head of Equities and Markets at Interpretiv
While headline inflation continued to cool in September, we think the downward trend has hit a bottom for the time being. With both core and supercore inflation remaining sticky, any further cooling in overall inflation will be heavily reliant on energy and food costs, which seems unlikely given the recent spike in oil prices.

Thus, the Fed's stance on future cuts may need to be reassessed in light of these developments. Yesterday's FOMC minutes revealed concerns about premature rate cuts reigniting inflation, with more members than previously thought split between 25bps and 50bps cuts. This, coupled with a surprisingly resilient labor market and higher wage growth since their September meeting, suggests the Fed may need to revert back to a more hawkish stance until they see further progress on inflation and/or a weaker labour market.

In our opinion, we don't think a November rate cut is on the cards, and we now only expect one more 25bps cut in December, totalling to 50bps for 2024.
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Premium
David Belle
Founder and Trader at Fink Money
Traders seem to be betting on the heightened war effects as being a considerable issue in the inflation complex. I would argue they'd be betting on a dissipation in Middle Eastern War effects and that warnings of attacks leading to little change on the price of oil as being a key aspect of what they're focusing on.

Headline and core being pretty flat MoM shows the direction of travel is flatter volatility on expected interest rate pricing — in other words, the Fed likely to press on with 25bps in November and 25 bps in December, unaffected by current data.

We're looking at a Goldilocks environment of higher growth, improving inflation and still increasing corporate earnings — an absolute dream for passive equity buyers.