The delayed inflation data finally came Friday, giving Wall Street one final reason for optimism ahead of the Federal Reserve’s two-day policy meeting next week. The consumer price index increased 0.3% in September from August, bringing the 12-month inflation rate to 3%. Economists surveyed by Dow Jones had estimated gains of 0.4% and 3.1%, respectively. Excluding volatile food and energy prices, so-called core CPI showed a 0.2% advance on the month and an annual increase of 3%. That was lower than estimates of 0.3% and 3.1% from Wall Street economists. Investors applauded the release, sending stock futures higher in premarket trading. The data bolster hopes for two more interest rate cuts from the Federal Reserve this year. Interest rate futures trading shows a quarter point reduction in the fed funds rate next week is a near certainty, and odds of another quarter point cut in December were also higher, according to the CMEGroup FedWatch tool. “The good news is that while inflation is ticking higher, it is not running away,” said Jay Woods, chief market strategist at Freedom Capital Markets. “Today’s number is what the Fed and the market needed heading into next week’s meeting. This gives them ample room to cut and remain dovish.” Following the CPI report, odds for a December cut jumped to 98.5% from 91% before the data. “There was little in today’s benign CPI report to ‘spook’ the Fed and we continue to expect further easing at next week’s Fed meeting,” said Lindsay Rosner, head of multi sector fixed income investing at Goldman Sachs Asset Management. The CPI report has taken on even more significance in the absence of many other data releases amid the three-week-old federal government shutdown — now the second-longest on record. The index was originally slated for release nine days ago, and was only able to be released at all after the Labor Department called back staff. Rosner at Goldman Sachs also said that traders can bank on another cut in December, especially given the lack of economic data for central bank policymakers to weigh. ‘The dog that didn’t bark’ Brad Conger, chief investment officer at Hirtle, Callaghan & Co., had expected a hotter-than-normal reading given the impacts of President Donald Trump’s tariff increases on prices. But the Fed was prepared for such a situation, he said. Others were somewhat less sanguine. Friday’s release showed “slight stubbornness” in goods inflation, according to Ryan Weldon, investment director at IFM Investors. But he cited recent remarks by Fed officials pointing to tariff-driven inflationary spikes as short-lived, leaving room for the central bank to keep cutting rates. Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, said Friday’s CPI report “locked in” the likelihood of a 25 basis point cut next week. He also expects a “dovish tone” from the Fed in its accompanying statement. Looking ahead to December, Lyngen said another rate cut at that meeting is also “cemented” following the report. There is no Fed meeting in November. For Chris Zaccarelli, investing chief at Northlight Asset Management, the CPI report showed that inflation hasn’t flared up, as many anticipated in the wake of Trump’s higher tariff policy. “Much like a Sherlock Holmes’ story, inflation is the dog that didn’t bark,” Zaccarelli said. “So many people have been expecting a sharp increase in inflation and have positioned bearishly as a result, but the market is likely to keep squeezing the shorts until they realize that the economy – and corporate America – is more resilient than many expected.”
Traders get their wish as Fed has greenlight to cut twice more in 2025
