"New Federal Reserve News Agency": US September CPI mixed with joy and sorrow, the bumpy road of cooling inflation continues

Renowned financial journalist Nick Timiraos, known as the "New Fed News Agency," wrote that the September CPI inflation report in the United States is a mixed bag, with the road to cooling inflation continuing to be bumpy.

Timiraos pointed out that the September CPI report is the last CPI report before the 2024 U.S. presidential election, and one of the last important inflation reports that people will see before the election. The challenge facing the Democratic Party in the United States is that they hope to reap the benefits from the significantly vibrant U.S. economy on one hand, while also dealing with public dissatisfaction with rising prices on the other.

The U.S. inflation rate has fallen to levels seen since President Biden took office. However, while the inflation rate has cooled down, it has not been warmly welcomed by many Americans, as prices for all goods such as groceries, restaurant meals, housing, insurance, etc., are still much higher than they were four years ago.

The latest data highlights the above contradictions. Inflation continues to decline along a very uneven path, making it difficult for Federal Reserve officials and economists to fully believe that high inflation has been contained.

Thursday's CPI report is the first of three inflation data points that Federal Reserve officials will see before the next meeting. Timiraos stated that preliminary estimates show that the Federal Reserve's preferred inflation gauge - the core personal consumption expenditures price index - will show a lower increase in September compared to the CPI. On Friday, the U.S. Department of Labor will release the September PPI data, with economists expecting a slight slowdown in the inflation rate compared to August.

Timiraos quoted Ryan Sweet, Chief U.S. Economist at Oxford Economics, who commented:

It's disappointing, but the process of declining inflation and approaching the Fed's target will be bumpy.

There are some special cases, such as rising prices for sports events and college textbooks.

After the release of this CPI report, the inflation outlook has not really changed. The labor market does not seem to pose significant upside risks to inflation.

Timiraos also quoted Atlanta Fed President Bostic. Bostic stated that he had long expected economic data to show monthly fluctuations, which could make identifying underlying trends complex. However, the latest data has not changed his expectation that the Fed will need to cut rates significantly next year:

I have been saying that we should expect data to fluctuate - I have always used the word "unstable". We may occasionally receive unstable reports. But the question is, do they herald a new trend?

Bostic voted in favor of a significant 50 basis point rate cut last month, expecting another quarter-point cut later this year. Bostic's latest statement on Thursday indicates that based on the economic outlook, he believes it is reasonable to cut rates at both of the remaining meetings this year or at one of them, but the recent mixed data suggests, "perhaps we should pause the rate cuts in November. I am absolutely open to this."

Investors expect the Fed to cut rates by a quarter point at the next meeting, after the Fed made a significant half-point rate cut last month. The dot plot released at the September FOMC meeting showed that most officials expect two more rate cuts this year, each by a quarter point. The Fed has two more meetings scheduled for this year Timiraos pointed out that investors have been reconsidering the speed of the Fed's rate cuts as recent labor market data suggests the US economy may be stronger than expected. While investors still believe the Fed will cut rates at the remaining two meetings this year, they now think that the pace of rate cuts next year and the magnitude of rate cuts throughout the entire easing cycle will be smaller than expected a few weeks ago.

Also on Thursday, the US Labor Department reported that the number of Americans filing for unemployment benefits for the first time rose to the highest level in over a year last week. While this may reflect the impact of Hurricane Helen, it also adds a cautionary note to other data showing very low levels of layoffs. The stock market rose after unexpectedly strong nonfarm payroll data was released last Friday