We finally get some important US economic data on Friday with the release of the September CPI figures. These numbers have been delayed from the original publication date of October 15 and will be watched closely in light of the lack of other top tier data points. That said, we will very likely have to see a big upside surprise to shake current market thinking around the Fed’s next policy moves. A 25bps rate cut next week is a done deal according to current pricing, with 48bps predicted by money markets for the October and December FOMC meetings in total.
The Bureau for Labor Statistics (BLS) has recalled staff to finalise the September CPI report, essential for calculating next year’s Social Security payments. The White House Office of Management and Budget directed the move. Consensus expects US headline CPI to rise by +0.4% m/m in September, unchanged from the prior print and 3.1% y/y, up from 2.9% seen in August. The core rate is seen rising by +0.3% m/m and 3.1% y/y, in line with August figures. Markets will be watching the data again for signs of any further tariff pass-through which is expected to become more obvious in the upcoming months as firms increase imports amid falling inventories. But softer housing inflation is expected to offset some tariff-driven price pressures; as weaker labour and housing markets are seen as reducing inflation risks, which in turn should support expectations of further Fed easing.
Fed views on inflation
The recent FOMC meeting minutes revealed that officials are split over monetary policy due to differing views on inflation and the labour market. The majority see employment weakening, justifying further rate cuts, but some have noted inflation risks. Further out, policymakers generally see the inflation impact diminishing and expect a return to the 2% target. The split reflects contrasting assessments on whether current policy is already accommodative or whether additional easing is needed to support jobs. External factors, such as tariffs and the government shutdown limiting economic data add uncertainty, contributing to a cautious but generally easier policy stance.
Market reaction
Fed officials are now in the blackout period ahead of next Wednesday’s FOMC meeting.  Current US money market pricing implies around two kore 25bps cuts for this year, with around 64bps until January and a terminal rate just above 3%.  It seems the bar is very high to not go through with a rate cut next week, though a hot report could push back rate cuts further out and bolster the dollar in the short term.  Softer data would give the Fed more license to cut and tip the balance towards at least three times in the next three meeting, with stocks likely bid and the greenback hit.