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Wall Street on US CPI: Rate Cut Pace May Slow, but Inflation Decline Continues
The U.S. Bureau of Labor Statistics released data on Thursday showing that the U.S. CPI in September rose by 2.4% year-on-year, slowing down from the previous value of 2.5%, but exceeding the expected value of 2.3%. The core CPI in September (excluding the more volatile costs of food and energy) rose by 3.3% year-on-year, slightly exceeding the expected and previous value of 3.2%. Most Wall Street analysts believe that the September CPI data is mixed, although it strengthens the expectation that the Federal Reserve will slow down the pace of rate cuts, a substantial rate cut of 50 basis points can be ruled out, but it will not change the Federal Reserve's judgment that inflation is still on a downward trend.
Leo He from UBS Securities trading team:
"In September, the overall and core CPI in the United States increased by 18 basis points and 31 basis points respectively, higher than the market's expected increase of 0.1% and 0.2% on a month-on-month basis. Details show that the equivalent rent for homeowners slowed down from 50 basis points last month to 33 basis points, but medical services rose from -9 basis points to 66 basis points, used cars increased by 0.3% month-on-month, while previously it was -1%. The super core rose to 40 basis points, the highest since April."
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Ali Jaffery from CIBC Capital Markets:
"Today's data will strengthen the expectation that the Federal Reserve is not in a hurry to act. The labor market is slowing down, but it has not collapsed yet, and inflation is still slightly above the target."
Karl Schamotta, Chief Market Strategist at Corpay:
"Investors may have been too optimistic in expecting a large-scale rate cut after the September meeting, but a gradual rate cut over the next few months is still the most likely outcome."
Anna Wong, Head of Bloomberg Economics:
"The September CPI report contains good and bad news about inflation. The good news is that the deflation of rents may have finally accelerated. The bad news is that inflation remains high in some key service categories, such as car repairs and insurance. The deflation of core goods prices has stagnated. However, even so, the Federal Reserve's preferred price indicator - the core PCE deflator (to be released on October 31) may still rise slower than the CPI, which has been reflected in recent months.
Overall, although the core CPI exceeded expectations, we do not believe that this report will change the Federal Open Market Committee's (FOMC) view that inflation is on a downward trend. We expect the FOMC to cut interest rates by 25 basis points at the meeting on November 6-7."Ira Jersey, Head of Interest Rate Strategy at Bloomberg Economics:
"Higher-than-expected CPI data should rule out the possibility of a 50 basis point rate cut and may lead the market to doubt whether the Federal Reserve will cut another 150 basis points as expected. Our focus is on consumers, so next week's retail sales report is crucial for the outlook on Treasury yields for the rest of this month.
Core service inflation continues to moderate, with most of the unexpected increases seemingly coming from the more volatile automobile costs... The rise in core CPI is mainly influenced by more volatile areas, while the more stable sectors continue to decline. This suggests that inflation will trend downward again over time."
David Russell, Director of Market Strategy at TradeStation:
"This data may not be as bad as it seems because housing costs have slowed significantly. This is important because housing costs have been the biggest ongoing problem with inflation. Friday's data is not good news, but it is also unlikely to have a significant impact because the Federal Reserve is still in the early stages of its easing cycle. The days of CPI causing major fluctuations may be fading."
Jamie Cox, Managing Partner at Harris Financial Group:
"Disinflation is still ongoing, but anyone who thinks the Federal Reserve will cut rates by another 50 basis points in November is very wrong. When interest rates are not high enough to reduce growth, they are also not high enough to completely contain inflation. The Federal Reserve will lower rates, but the pace will be cautious from here on out."
Olu Sonola, Head of US Economic Research at Fitch Ratings:
"The good news is that the trend is still generally disinflationary, but the bad news is that service sector inflation remains a problem. Inflation is weakening, but it has not disappeared. Following the unexpectedly strong employment data in September, this report encourages the Federal Reserve to maintain caution in the pace of its easing cycle. The most likely path remains a 25 basis point rate cut in November, but a rate cut in December should not be taken for granted."
Michael Brown, Senior Market Analyst at Pepperstone:"Despite the stronger-than-expected employment report in September and continued progress in disinflation, we anticipate that the Federal Reserve will cut rates by 25 basis points at each of the two remaining FOMC meetings this year, and this pace of rate cuts may continue into 2025 until the federal funds rate returns to a roughly neutral level, around 3% by next summer. Essentially, this is the so-called 'Fed put' continuing to exist in a strong and flexible form, providing confidence to participants, while keeping stock declines relatively shallow and seen as buying opportunities."
Florian Ielpo of Lombard Odier:
"Although overall inflation data is unwelcome, it is beneficial to corporate earnings, thereby benefiting stocks. A significant part of the recent stock market rally can be attributed to the dual impetus of falling interest rates and Chinese economic stimulus. However, as inflation proves more stubborn than expected, interest rates may face temporary upward pressure."
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