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New inflation data showed consumer prices rose as forecast in October, keeping the Federal Reserve on track to lower interest rates again in December.
The latest data from the Bureau of Labor Statistics released Wednesday morning showed that the Consumer Price Index (CPI) increased 2.6% over the prior year in October, a slight uptick from September’s 2.4% annual gain in prices. The yearly increase matched economist expectations.
The index rose 0.2% over the previous month, matching the increase seen in September and also on par with economist estimates.
On a “core” basis, which strips out the more volatile costs of food and gas, prices in October climbed 0.3% over the prior month, matching September, and 3.3% over last year for the third consecutive month.
“There is progress on inflation,” Claudia Sahm, chief economist at New Century Advisors told Yahoo Finance following the data’s release. “We are pointed in the right direction, but it has been a slow grind. And this is another month that fits in that slow grind.”
Although inflation has been slowing, it has remained above the Federal Reserve’s 2% target on an annual basis. Over the past three and six months, the picture becomes even more muddled for the central bank.
For the month of October, the 3-month annualized rate for core CPI rose to 3.6% versus the prior 3.1%. The 6-month annualized rate held steady at 3.3%.
The outlook for inflation remains uncertain as economists warn of another potential inflation resurgence following the election of Donald Trump as the nation’s next president.
Compared to the current Biden administration, Trump and his proposed policies have been viewed as potentially more inflationary due to the president-elect’s campaign promises of high tariffs on imported goods, tax cuts for corporations, and curbs on immigration.
In a press conference following the latest rate cut, Federal Reserve Chair Jerome Powell said the central bank does not and will not make decisions based on expected policy changes from a new administration.
“In the near term, the election will have no effect on our policy decisions,” he said at the time. “We don’t know what the timing and substance of any policy changes will be. We, therefore, don’t know what the effects on the economy would be, specifically whether and to what extent those policies would matter for the achievement of our goal variables: maximum employment and price stability.”
Immediately following the data’s release, markets continued to price in another 25 basis point cut in December, although the probability investors put on the central bank holding rates steady increased to over 40% compared to roughly 30% one week ago, per the CME FedWatch Tool.
