U.S. Inflation Slows: Implications for Federal Reserve Rate Policy

U.S. consumer prices rose in September, defying expectations, yet the annual inflation increase was the smallest in over three years, aligning with the Federal Reserve's potential interest rate cut plans. Meanwhile, strong labor market performance and consumer spending patterns influence future monetary decisions.

In a surprising twist, the U.S. consumer prices rose by 0.2% in September, slightly exceeding forecasts, yet marking the smallest annual inflation rise in over 3.5 years. The Labor Department reported that the consumer price index climbed 2.4% year-on-year, providing the Federal Reserve with potential leeway to enact further rate cuts.

Reuters economists expected a lower 0.1% gain for September, reflective of a significant easing from the 9.1% inflation peak witnessed in June 2022. The data encourages the Federal Reserve's current focus on labor market dynamics and justifies a notable 50 basis points rate cut executed in the previous month.

Despite this, the resilience in the labor market and robust consumer spending casts doubt on any imminent substantial rate cuts. While the core CPI indicator reveals inflation persistence, especially in housing, there exists a notable 76% probability of a minor rate cut in the November policy meeting, per CME Group estimates.

(With inputs from agencies.)