U.S. consumer prices increased as anticipated in October, signaling a slowdown in progress toward reducing inflation and possibly limiting the number of interest rate cuts by the Federal Reserve next year. The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose by 0.2% for the fourth consecutive month. Year-on-year, the CPI advanced by 2.6%, up from 2.4% in September, aligning with economists' predictions.
This uptick in annual inflation reflects the elimination of last year's low reading from the calculation. Economic frustration over inflation has contributed to Republican Donald Trump's recent election victory over Vice President Kamala Harris. Economists predict that Trump's proposed economic policies, which include tax cuts, tariffs on imports, and immigration restrictions, may lead to higher inflation by shrinking labor supply and increasing business costs, which may be passed on to consumers.
While the Fed is expected to implement another rate cut in December, further cuts in 2024 may be limited. U.S. Treasury yields have risen as investors anticipate the likely enactment of the president-elect's policies, bolstered by a Republican majority in the Senate and an expected win in the House of Representatives.
Although inflation has eased from its June 2022 peak of 9.1%, it remains above the Fed's 2% target. The Fed recently reduced its key interest rate by 25 basis points, bringing it to a 4.50%-4.75% range. The policy shift began with a significant 50 basis point cut in September, marking the first reduction in rates since 2020. After aggressive rate hikes in 2022 and 2023, the core CPI, which excludes volatile food and energy prices, rose 0.3% in October for the third straight month and 3.3% year-over-year.
As of Wednesday, financial markets saw a 58.7% likelihood of a 25 basis points cut at the Fed’s December meeting, with a 41.3% chance that rates will remain steady, according to CME Group’s Fed Watch Tool.
