Inflation was hotter than expected in September, but continued its downward trend

• Inflation cooled in September, but less than economists expected.
• The consumer price index increased 2.4% over the year, above the forecast of 2.3%.
• The unexpectedly hot inflation reading complicates the prospect of further rate cuts from the Fed.

Inflation came in hotter than expected in September.

The consumer price index, a closely-watched inflation measure, increased 2.4% from September 2023 to this past September. This index was expected to see a year-over-year increase of 2.3%, a cooler rate than August’s 2.5%.

The surprisingly hot inflation reading is a sign that the economy is running hot, and makes it less likely that the Fed will feel comfortable cutting interest rates further at their next meeting.

According to the CME FedWatch tool, which shows implied probabilities of where the Fed will set interest rates based on market activity, the most likely case was a cut of 25 basis points, with a smaller possibility that the Fed would decide to hold rates steady. The Fed will announce its decision on November 7.

The recent surprisingly strong jobs report could mean the Fed feels less urgency to cut interest rates next month. The economy saw a massive job gain in September compared to the forecast and recent months, adding 254,000 jobs. Unemployment also unexpectedly cooled to 4.1%.

The Fed will have other data to mull over before the November meeting. The Employment Cost Index, a quarterly release that shows how much companies are paying in salaries and benefits, will be published on October 31. Plus, the next jobs report, which includes how job gains looked in October as well as potential revisions for September’s and August’s growth, will be out on November 1.

This is a developing story. Please check back for updates.