US inflation accelerated in October from the pace it set a month earlier — raising doubts whether the Federal Reserve will continue to cut interest rates before the end of the year.
The Consumer Price Index rose 2.6% versus a year ago last month — above the 2.4% increase seen in September, but falling in line with expectations, the Labor Department said on Wednesday.
Month-over-month, the CPI rose 0.2% in line with economists’ expectations, the same increase as last month.
Core inflation, which excludes volatile energy and food prices, rose 3.3% versus a year ago in October. Month-over-month, core inflation grew 0.3% — in line with a month earlier.
Though investors expect a third round of interest rate cuts in December, those odds have fallen over time as prices remain high and Fed Chair Jerome Powell hinted at uncertainty around further cuts this year.
“Really the question is – is December,” Powell told reporters during a press conference last week. “By December, we’ll have more data.”
Officials are closely watching inflation and job reports as they weigh whether to lower rates during their next meeting.
“The 2.6% year-over-year print, while expected, may keep the Fed mindful from declaring victory over its campaign to quell inflation,” Quincy Krosby, chief global strategist for LPL Financial, said in a note.
Food prices grew 0.2% in October, below a 0.4% rise in September. Grocery prices ticked up 0.1%, below a 0.4% rate in September. But shelter inflation picked up the pace, rising 0.4% in October – above its 0.2% rise in September.
Shelter inflation, which includes housing, rent and hotels, accounted for more than half of the total inflation reading, according to the Bureau of Labor Statistics.
The Fed’s next meeting is scheduled for Dec. 17 – 18. Investors currently see a 62.1% chance the central bank will lower rates at this next meeting, according to CME FedWatch.
“We expect as we get closer that the odds will increase for a cut,” Mahoney Asset Management CEO Ken Mahoney told The Post. “Powell’s rhetoric last time is that they are most likely going to remain on this path…so for us, this [CPI report] comes as still being pretty goldilocks and it should not change the fact that there will still be a December cut.”
“There has to be some give and take and the Fed is finally aware of that, and it could be near impossible for them to get inflation down to 2% flat,” Mahoney said.
Inflation has eased significantly since its pandemic-induced peak of 9% in 2022 — but meeting the Fed’s 2% goal may be the hard part, according to BeiChen Lin, investment strategist at Russell Investments.
“The last stretch of the inflation fight can be filled with twists and turns,” Lin told Barron’s. “And this month, markets are expecting that the inflation fight might take a bit of a pause.”
Though inflation has stayed above 2%, the central bank slashed its key lending rate by an outsize half point in September and again by a quarter point last week after President-elect Donald Trump’s victory, turning its attention to employment.
Costs are clearly top of mind for Americans, who elected Trump to the White House last week and cited inflation and the economy as their top concerns, according to exit polls.
Along the campaign trail, Trump promised that “inflation will vanish completely” during his next term. Economists have warned that his vow to enact all-around tariffs, with particularly harsh rates on goods from China, could reheat inflation.
The 10-year treasury yield ticked down by about 0.05% after the inflation report was released Wednesday morning.
“The CPI coming in as expected across all components triggered a sigh of relief from Treasuries,” Krosby said.
Employers added just 12,000 jobs in October — far slower growth than expected — for the lowest job total since December 2020 as devastating hurricanes and a major strike by Boeing employees crushed jobs, according to the US Bureau of Labor Statistics.
Economists surveyed by Dow Jones had expected payrolls to expand by 100,000, which still would have been a huge drop from September’s revised 223,000.
The employment rate remained unchanged at 4.1% and the number of unemployed people was little changed at 7 million, according to government data.
The jobs report, which showed growth far below already poor expectations, could discount the Fed’s success with rate cuts and dispel the economy’s so-called soft landing, which is a slowdown in growth without enflaming a recession.
But the US Bureau of Labor Statistics acknowledged that “payroll employment estimates in some industries were [likely] affected by the hurricanes.”
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