US inflation was lower than expected. What does this mean for the Fed?

US inflation in September was below expectations. The U.S. government released the first significant economic report since the beginning of the shutdown, which left investors without access to statistics for 24 days. U.S. stocks reacted to the data with a sharp rise. Despite the fact that inflation remains above the Fed's target, investors have little doubt that the central bank will cut rates next week.

- The Consumer Price Index (CPI), a general measure of the cost of goods and services in the U.S. economy, in September amounted to 3% in annual terms after 2.9% in August. The result was below forecasts: analysts surveyed by FactSet expected inflation to accelerate to 3.1%.

- On a month-on-month basis, consumer prices rose 0.3% in September, while analysts had forecast a 0.4% increase.

- Core inflation (Core CPI, excluding volatile food and energy prices) was 0.2% MoM and 3% YoY. This also came as a surprise: forecasts had suggested price growth of 0.3% and 3.1%, respectively.

U.S. stocks sharply accelerated growth in preliminary trading after the release of statistics. Futures on the S&P 500 index soared by 0.7%, on the Nasdaq 100 - by 0.9%.

This is the first release of key economic data since the U.S. government shutdown more than three weeks ago, leaving investors without important statistics on the state of the economy. The CPI report was scheduled to be released on October 15, but the publication was postponed for more than a week due to the shutdown. As a result, the data came out just five days before the Federal Reserve's monetary policy meeting, at which the central bank will make a decision on the key rate.

The report showed that inflation in the U.S. is still far from the Fed's target of 2% per annum. Nevertheless, the data, which turned out to be better than forecasts, practically guarantees that the Fed will cut the rate at the next meeting, Bloomberg writes. According to CME FedWatch, the market expects with almost 100% certainty that the Fed will cut rates by 25 basis points to a range of 3.75-4% next week. Traders predict another quarter-point rate cut in December.

"We agree with the market's assessment and believe that only extremely unlikely risks would cause the Fed to refrain from cutting rates," Andrew Tyler, head of global market analytics at JPMorgan, said in a note to clients this week.

This article was AI-translated and verified by a human editor