The higher-than-expected inflation rate announced Thursday is another boost for Federal Reserve hawks who insist on a gradual pace of rate cuts.
The consumer price index rose 2.4% year-on-year in September, exceeding economists’ expectations. This was still only a slight slowdown compared to August’s annual price increase rate of 2.5%.
As for the Fed’s favored “core” policy, which eliminates volatile food and energy prices, the index rose 3.3% versus an expected 3.2% rise. And that’s up one-tenth of a percent from August.
Some Fed watchers say the report is unlikely to change policymakers’ path for further modest rate cuts following an initial 50 basis point cut in September.
In fact, the CPI announcement raised investors’ odds that the Fed would cut interest rates by 25 basis points to 87% in November.
However, a better-than-expected September employment report and a positive outlook on inflation could strengthen the argument of hawks on the Fed’s rate-setting committee that future interest rate cuts should be gradual. expensive.
Those voices include Federal Reserve Board member Michelle Bowman, who was the only one to oppose a rate cut in September and wanted to slow policy, citing concerns about inflation. Atlanta Fed President Rafael Bostic also expressed deep concerns.
Fed Director Michelle Bowman advocated a modest 25 basis point (bp) rate cut in September, partly due to concerns about inflation. (Photo courtesy of Horacio Villalobos#Corbis/Corbis via Getty Images) (Horacio Villalobos via Getty Images)
Omer Sharif, president of Inflation Insights, said the new CPI readings are unlikely to change the Fed’s calculations, especially since there are signs that housing costs are easing.
“The Fed still wants to move forward slowly, so I think the base case for November will be the 25th.”
Not everyone agrees. Eric Wallerstein, chief market strategist at Yardeni Research, said the new information not only gives Fed hawks “more leverage in November,” but also raises the possibility that the Fed won’t cut rates again this year. said.
“I think the Fed should stay where it is for the rest of the year,” he said, adding that the central bank’s policy shift in September with huge interest rate cuts was “certainly premature.”
Indeed, Fed minutes released Wednesday revealed that there was a heated debate at its September meeting over whether to cut interest rates by 25 basis points or 50 basis points.
A “substantial majority” of Fed officials supported cutting interest rates by 50%, while “some” wanted to cut rates by 25%, according to minutes of the meeting.
These minutes show that while the majority of the committee supports 25 basis points, some members were encouraged by Fed Chairman Powell and other members to expand further. That means it’s possible.
story continues
In the weeks since that meeting, many Fed officials have publicly urged a path to gradual rate cuts to balance downside risks to unemployment with continued efforts to curb inflation.
New York Fed President John Williams became the latest official to express that view on Thursday, saying in a speech that “it is appropriate to continue the process of shifting the stance of monetary policy toward a more neutral setting over time.” I hope so.”
Williams did not comment on Thursday’s Consumer Price Index (CPI) report, but said officials were pleased with the progress in inflation but recognized there was more work to be done. There was no deviation from the latest Fed scenario.
John C. Williams, President and CEO of the Federal Reserve Bank of New York. (Photo by Apu Gomez/Getty Images) (Apu Gomez via Getty Images)
“We still have a long way to go to reach the 2% target, but we are definitely moving in the right direction,” he said.
One of my colleagues, Dallas Fed President Rory Logan, said Wednesday that “a more gradual path to a normal policy stance is appropriate from here to best balance the risks against our dual mission objectives.” Deaf,” he said.
Chairman Powell also made clear in his September 30 remarks that the central bank was in “no rush” to cut interest rates and was hoping for smaller rate cuts.
He also reiterated that Fed officials’ consensus, outlined at their September meeting, was for two more 25 basis point rate cuts this year, “and that doesn’t mean another 50 basis points.”
“While we expect a 25 basis point rate cut in November, we emphasize that recent hurricanes, strikes, and the FOMC’s two-day vote date will disrupt economic conditions,” said Gregory Daco, chief economist at EY. Ta.
“Policy gradualism is likely to prevail unless underlying growth in payrolls, hours worked, and the unemployment rate slows significantly next month.”
The next test will be the next jobs report, to be released on November 1, a few days before the next Fed policy meeting on November 6-7.
Quincy Crosby, the Fed’s chief global strategist, said, “If inflation statistics continue to show that prices are generally rising due to a cooling labor market, there is no question which of the Fed’s responsibilities will be prioritized at the next FOMC meeting. There will likely be even more heated debate over whether this will be the case.” LPL Financial.
Chicago Fed President Austan Goolsby told CNBC on Thursday that there have been some “close call” meetings at the Fed in recent months, but “there will probably be more close calls.” said.
For the latest stock market news and in-depth analysis of price-moving events, click here
Read the latest financial and business news from Yahoo Finance
