Curious about where inflation is headed and how it could impact interest rates? The release of October’s Consumer Price Index (CPI) will offer fresh insights into whether inflation continues to be a threat to the U.S. economy or if it’s stabilizing.
Such reports are crucial for commodities market trading, as inflation trends can directly impact commodity prices. Traders and investors closely watch these economic indicators to gauge potential price movements in markets like oil, metals, and others, helping them make informed trading decisions. This report will guide the Federal Reserve’s next steps after its recent quarter-percentage-point rate cut.
What’s the CPI Expected to Show?
Economists anticipate that October’s CPI will reveal a slight rise in annual inflation to 2.6%, up from September’s 2.4%, which was the lowest level seen since early 2021. On a monthly basis, prices likely rose by 0.2%, mirroring the increase from September. But what does this mean for your wallet? A 0.2% increase each month, though moderate, adds up and can impact the cost of everyday goods over time.
When we look at “core” inflation—which excludes volatile food and energy prices for a clearer view of underlying trends—it’s expected that core prices will have risen 3.3% over the past year, the same rate as in the previous two months. Monthly core price growth is also projected to remain steady at 0.3%, showing that while inflation may not be accelerating, it’s not declining quickly either.
So, what’s keeping core inflation elevated? Much of it is driven by rising costs in essential areas like housing and services, including insurance and healthcare. As these categories don’t often fluctuate dramatically, they tend to “stick” in the inflation measure, keeping it higher than the Fed’s target of 2%.
Is Inflation Expected to Make Progress Anytime Soon?
Bank of America economists suggest that inflation may “remain flat” in the coming months, following what they call a “period of disinflation.” In other words, while inflation has been slowing down, it hasn’t reached the desired levels yet. Is this a sign that inflation is here to stay, at least for the near term?
Despite recent easing, inflation hasn’t dropped below the Fed’s 2% target on an annual basis. So, will the central bank need to take further action? This CPI report could influence whether the Fed decides to cut rates further in December, as many are predicting, or to keep rates steady.
How Could Politics Play a Role in Inflation?
Adding to the complexity, some experts are watching how potential policy changes under the next administration might influence inflation. The recent election of Donald Trump as president brings economic policy shifts that could alter inflation’s trajectory. Compared to the current administration, Trump’s policies—such as proposed tariffs on imports, corporate tax cuts, and immigration restrictions—are seen as potentially inflationary by some economists.
But should we be concerned about the impact of new policies on inflation right now? Federal Reserve Chair Jerome Powell has made it clear that the Fed does not base its decisions on anticipated policy changes from incoming administrations. In a recent press conference, Powell stated, “In the near term, the election will have no effect on our policy decisions.” The Fed, he says, will wait until policies are enacted to assess their real impact on inflation and employment.
What’s Next for Interest Rates?
The Fed’s next move on interest rates is expected to be a key focus of market watchers. As of recently, investors see a strong chance of another 25-basis-point rate cut in December. However, some are also betting on the Fed holding rates steady, with the probability of no rate change rising to 35%, up from 22% just a week prior.
What factors could sway the Fed’s decision? Bank of America believes that Chair Powell’s recent comments indicate the Fed may be leaning toward a December rate cut. They caution, however, that evolving risks tied to inflation and the strength of the U.S. economy make the medium-term policy outlook less certain.
The Big Picture
While economic fundamentals suggest that inflation could continue to moderate, policy changes pose potential risks to that outlook. If new policies shift the economic landscape, inflation could climb unexpectedly, affecting costs across the board.
The CPI data will provide important insights, but the bigger question remains: will the Fed’s actions be enough to bring inflation to its target? And what might this mean for your financial plans? As the year ends, all eyes are on the Fed—and on the numbers.
