Inflation nation
Consumer prices were up 3.7% over the past 12 months...the same as in August and slightly higher than economists' forecasts. The Federal Reserve isn't going to cut rates anytime soon.
Repeat after me. The Federal Reserve is not going to be cutting interest rates any time soon. The latest consumer price index (CPI) figures show that inflation remains a stubborn and persistent concern for policy makers.
Prices were up 3.7% over the past 12 months through September. So there was no change in the annual inflation rate from August’s reading. Economists were forecasting a slight dip in the pace of price increases, to 3.6% year-over-year. Shelter costs surged and food prices continued to climb.
There is some good news though. Overall energy prices actually dipped slightly year-over-year, despite a rise in gas prices. So the Federal Reserve is probably not going to panic after this report. and hike rates again. The problem, if you want to call it that, is that there is nothing in the CPI report that screams impending recession or that would allow the Fed to declare a complete and total victory in the fight against inflation just yet.
That means that the Fed probably will pause at its next meeting on November 1 and could do so again in December. But rate decisions are likely to remain data dependent for the foreseeable future…and the data still has a slightly more hawkish feel to it.
Until we see a steeper drop in the pace of inflation (YOY CPI is going to need to continue to drift more towards a 3% range) then the Fed is not going to start flapping its dove wings and consider rate cuts just yet. Lower rates may not be in the cards until the back half of 2024…or even later than that.
Investors will also have to keep a close eye on the jobs numbers too. If wage gains cool dramatically, that could change the calculus for the Fed. But we’re not there yet either. Average hourly earnings rose 4.2% in September. And the latest weekly jobless claims numbers showed that just 209,000 people filed for unemployment benefits…the same number as a week ago and near multi-decade lows. So if the bulls are betting on the Fed easing anytime soon, they need to keep dreaming.