NEWS AND INSIGHTS | INSIGHTS

CIO Notebook: Inflation Print Supportive of Continued but Patient Fed Easing

October 10, 2024
Shannon Saccocia, 私人財富部門投資長

We believe the Federal Reserve (Fed) will likely move the fed funds rate lower by 25 bps in their next two meetings, remaining flexible in their approach if the labor market data begins to soften more dramatically

September’s U.S. CPI, released today, came in slightly hotter-than-expected although well within the range of expectations. U.S. headline CPI was reported up +0.2% month-over-month and up +2.4% year-over-year versus expectations of +0.1% and +2.3%, respectively, while core CPI was up +0.3% month-over-month and up +3.3% on a year-over-year basis versus expectations for +0.2% and +3.2%, respectively.

The slight upside surprise in core CPI is similar to what was reported in August, and shelter prices continued to run at a rate well above the Fed’s target. Admittedly, however, both rent and owners equivalent rent were up only +0.3% in September. To put this in context, this is the second smallest gain for owners equivalent rent for the year, perhaps reflecting (finally!) the moderation in shelter inflation that has been telegraphed by the Fed for well over a year. With shelter coming in a touch better-than-expected, the bigger surprise this month came in the form of food prices which were up +0.4%. Breaking it down, food at home was up +0.4% and food away from home was up +0.3%, month-over-month. This unwelcome uptick was offset in terms of consumer impact by another decline in energy prices as gasoline fell -4.1% in the month.

The news outside of shelter, food, and energy – notable given their non-discretionary nature – was not all that great either, as apparel, medical care, and motor vehicle insurance prices were up +1.1%, +0.4%, and +1.2% month-over-month, respectively. The continued pressure higher on prices comes at a pivotal time as U.S. voters head to the polls in a matter of weeks with their individual economic situation likely top of mind. In addition, while lower interest rates are likely to have positive implications for housing inventories and activity, the persistence in higher prices in areas such as medical care and insurance remains a risk to consumer confidence and spending.

Review of the minutes from the Fed’s last meeting indicated that voting members of the FOMC were divided in terms of the magnitude of the interest rate cut effected in September, and, outside of a surprise uptick in U.S. jobless claims reported today, recent data points toward a more patient pace for the Fed over the next several months. In addition, the October data that will be available for the Fed to assess in their November 6-7th meeting may be heavily skewed due to the port strike and back-to-back major hurricanes. As a result, data released over the next several weeks might end up being more consequential in terms of the decision. Our view is that the Fed likely moves the fed funds rate lower by 25 basis points in the next two meetings, remaining flexible in their approach if the labor market data begins to soften more dramatically.

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