U.S. September CPI exceeds expectations across the board, traders increase bets on a 25 basis point rate cut by the Federal Reserve in November

According to the Zhitong Finance APP, the US CPI data for September released on Thursday exceeded expectations across the board, indicating a halt in the recent easing of price pressures. The data shows that the overall CPI in the US rose by 2.4% year-on-year in September, marking the sixth consecutive month of decline, slightly higher than the market's expectation of 2.3%, but still the lowest year-on-year increase since the beginning of 2021, lower than the previous value of 2.5%; the overall CPI in the US rose by 0.2% month-on-month in September, slightly higher than the market's expectation of 0.1%, and unchanged from the previous value. The core CPI, which is considered to better reflect underlying inflation, also exceeded market expectations. The US core CPI rose by 3.3% year-on-year in September, hitting a new high since June, higher than the market's expectation of 3.2%, and unchanged from the previous value; it rose by 0.3% month-on-month, also higher than the market's expectation of 0.2%, and unchanged from the previous value.

Analyst Enda Curran pointed out that the upward pressure on inflation from housing was expected, but the food sector also seemed to play a role. The data shows that the housing index rose by 0.2% in September, and the food index rose by 0.4% - these two indices together accounted for over 75% of all item growth.

It is reported that new and used car prices, clothing, and furniture prices have risen, marking the second increase in so-called core commodity prices since June 2023. In the service sector, prices for car insurance, healthcare, and airfares have risen significantly. According to media calculations, service prices excluding housing and energy projects rose by 0.4% month-on-month, the largest increase since April and the third consecutive month of accelerated growth.

Following the release of the US CPI data for September, as of the time of writing, the yield on the 10-year US Treasury bond rose slightly to 4.083%, while the yield on the 2-year US Treasury bond increased to 4.045%; futures for the three major US stock indexes extended losses, with Dow futures down 0.22%, S&P 500 index futures down 0.35%, and Nasdaq futures down 0.51%.

It is worth noting that tonight's CPI data is the most significant inflation data before the Fed's November meeting and the last CPI report before the 2024 US presidential election. Higher-than-expected inflation data, combined with last week's far better-than-expected US non-farm payroll data, may intensify the debate in the market over whether the Fed will cut interest rates by 25 basis points in November or pause its rate hikes.

Meanwhile, following the release of the US CPI data for September, traders have increased their bets on a 25-basis-point rate cut by the Fed next month. **Swap contracts show that traders currently estimate the probability of a 25-basis-point rate cut by the Fed in November to be over 80% **Greg Peters, Co-Chief Investment Officer of PGIM Fixed Income, stated: "What's really important is the labor market." Andrew Brenner, Director of International Fixed Income at NatAlliance Securities, also mentioned: "The Fed is much more concerned about employment."

Some traders believe that the likelihood of a 25 basis point rate cut by the Fed next month is higher, as despite the September CPI data exceeding expectations, it is still largely on a downward trend, and the Fed-favored PCE indicator has been approaching the 2% target. The upcoming Personal Consumption Expenditures (PCE) data to be released later this month is expected not to be influenced by the strong growth in several items in the September CPI, such as auto insurance and airfare prices.

Analyst Michael Brown from Pepperstone stated that although U.S. inflation data came in higher than expected, the September CPI data seems unlikely to substantially alter the FOMC's policy outlook. He noted: "Despite the stronger-than-expected September jobs report, given the ongoing progress on inflation, it is expected that the remaining two policy meetings this year will each result in a 25 basis point rate cut. This pace of rate cuts may continue until 2025, until the federal funds rate roughly returns to a neutral level of around 3% by next summer."

Analyst Jamie Cox from Harris Financial Group mentioned that the process of inflation easing is still ongoing, but anyone thinking that the Fed will cut rates by another 50 basis points in November is completely mistaken. He pointed out that when interest rates are not high enough to dampen economic growth, they are also not high enough to fully suppress inflation. Although the Fed will lower rates, it will do so at a moderate pace starting from now