If CPI unexpectedly rises, the Federal Reserve may "pause rate cuts" or put it on the agenda!

Although the possibility of another significant rate cut by the Federal Reserve in November is unlikely, the release of the Consumer Price Index (CPI) on Thursday may make it more likely for the Fed to "pause" its rate cuts.

According to data from CME FedWatch as of Wednesday, traders expect an 88% probability of a 25 basis point rate cut by the Fed on the next decision day on November 7, while the probability of no change hovers around 11%.

Jeremy Goff, director of Palmer Square Capital Management, said, "Thursday's CPI will be crucial, if the CPI is overheated, then the Fed will need to do some work to ensure a proper landing."

Recently, the U.S. stock market has been nearing historical highs, and if the September CPI released on Thursday shows significant surprises, it could lead to a market pullback.

The upcoming batch of economic data may also be influenced by oil prices, which rose in October due to escalating conflicts in the Middle East and two major hurricanes hitting the southeastern United States.

Goff mentioned, "There are many unpredictable events happening now, and these aftershocks often gradually impact economic data over time."

Furthermore, despite a cooling economy and job market in the U.S., it remains more resilient than expected when the Fed cut rates in September.

Data released on Tuesday showed that the U.S. trade deficit in August decreased by 11%, reaching its lowest point in five months, which also helped boost U.S. GDP.

The Atlanta Fed's GDPNow model estimates an annualized GDP growth rate of 3.2% for the third quarter in the U.S., higher than the 2.5% on October 1.

Ryan Sweet, chief U.S. economist at Oxford Economics, pointed out in a report on Tuesday that Hurricane Milton may drag down GDP growth in the fourth quarter.

Seamus Smyth, chief economist at Virtus Investment Partners, believes that "it is too early to talk about the Fed pausing rate cuts," but he added, "unless there is some very bad news on the inflation front."

While Smyth rules out the possibility of a 50 basis point rate cut, he expects smaller 25 basis point cuts in November and December, with the Fed likely to cut rates every other meeting next year.

BeiChen Lin, investment strategist at Russell Investments, said on Tuesday that while a 25 basis point rate cut in November remains the most likely scenario, upside surprises in inflation data could reignite discussions about pausing the Fed's rate cut cycle.

Ahead of the CPI data release, San Francisco Fed President Daly mentioned "two more rate cuts this year, or one more rate cut," while Boston Fed President Collins emphasized the need for a "cautious, data-dependent approach" to rate cuts