U.S. inflation figures, though remaining elevated, have reinforced widespread market expectations for the Federal Reserve to implement an interest rate cut as early as next week.
The Consumer Price Index (CPI) increased 3.0% annually in September, slightly exceeding August’s 2.9% but falling below the 3.1% economists had forecast. Monthly, the CPI rose 0.3%, a decrease from the prior month’s 0.4% and also below predictions.
Core CPI, which excludes volatile food and energy prices, showed a 3.0% annual gain. This figure was unchanged from the previous month and aligned with market estimates.
Markets are now pricing in a nearly 97% probability of a 0.25 percentage point rate reduction by the U.S. central bank. This expectation is based on data from the CME FedWatch tool. Traders also anticipate a third rate cut in December.
Art Hogan, chief market strategist at B. Riley Wealth, noted that the report “clearly will keep the Fed on track to cut rates.” He added that the Fed remains focused on softening labor data and its full employment mandate, even with core CPI above its 2% target.
The U.S. Bureau of Labor Statistics released the inflation data on Thursday. This was a notable release given that a government shutdown had limited the publication of other official economic reports.
Gasoline prices were the largest single contributor to inflation in September, rising 4.1% over the month. Food and housing costs each saw a more modest 0.2% monthly increase. Annually, energy costs were up 2.8% and food prices rose 3.1%.
The Federal Reserve last adjusted its benchmark interest rate to a range of 4%-4.25% in the previous month. A looser monetary policy typically aims to stimulate economic activity and can provide relief to riskier assets.
However, economists also point to potential headwinds that could exert downward pressure on markets. These include proposed tariffs by former President Donald Trump and ongoing concerns about labor market weakness.
Bitcoin’s price remained largely unchanged following the inflation report. The cryptocurrency traded around USD $111,293. Bitcoin had previously struggled to reclaim the USD $110,000 level after a period of extreme market turbulence on October 10. That event saw over USD $19 billion in liquidations and pushed Bitcoin below USD $105,000.
The broader cryptocurrency market saw some recovery. Ethereum traded at USD $3,968, marking a 3% increase on the day. The total market capitalization for cryptocurrencies reached USD $3.85 trillion, up 2.0%.