An inline reading on consumer price inflation keeps the Federal Reserve on track for a gradual pace of interest rate cuts, experts say, but details from the October Consumer Price Index (CPI) Report gave some market participants pause about the future course of monetary policy.
Among the unknowns experts cite are the ways in which a series of proposed tariffs could contribute to inflationary pressures.
For the record, headline October CPI increased 0.2% month over month – or the same rate seen in each of the previous three months – to match economists' expectations.
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On an annual basis, headline CPI rose 2.6%, according to the Bureau of Labor Statistics. Although inflation accelerated on a year-over-year basis, the print comported with market forecasts.
Core CPI, which excludes food and energy costs and is considered a better indicator of future prices, also matched estimates. The gauge increased 0.3% in October, or the same rate seen in August and September. Annual core CPI advanced 3.3% to match consensus expectations.
"The reacceleration in inflation may cause some indigestion for the market as inflation comes back into focus with the possibility of higher tariffs in the next administration, but this is probably not sufficient to alter the Fed course on interest rates in the next meeting," said Scott Helfstein, head of investment strategy at Global X. "We still expect a quarter-point rate cut in December, but the pace of cuts may be slow in 2025."
As of November 13, futures traders assigned an 82% probability to the Federal Open Market Committee (FOMC) cutting the short-term federal funds rate by 25 basis points (bps), or 0.25%, at the next Fed meeting. That was up from 59% a day ago, according to CME Group's FedWatch Tool. Odds of the Fed standing pat fell to 18% from 41% the previous session.
With the October CPI report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward.
Please see a selection of their commentary, sometimes edited for brevity or clarity, below.
Expert takes on the CPI report
"The October inflation data came in right on the nose of survey expectations. The markets clearly thought the inflation print would be hotter; futures pricing reflected a higher expected likelihood of a December rate cut. We agree with current market expectations around Fed pricing. Last week, Chair Powell reinforced that the Fed believes its policy stance is still restrictive, and that they remain on a rate-cutting trajectory. Our base case is that the Fed cuts 25 basis points in December before moving to an 'every other meeting' cadence for the first part of 2025." – Lauren Goodwin, chief market strategist at New York Life Investments
"There were no upside or downside surprises in the October CPI data, which is on balance encouraging because that means inflation continues to normalize. Lagging shelter inflation is still keeping core CPI elevated but there's disinflation in the pipeline, which should continue to put downward pressure on inflation in 2025. This should keep the Fed on track for another cut in December, especially since the guts of the report suggests PCE (their preferred metric) should be on the softer side. It's important to remember that the Fed actually targets headline inflation, rather than core, and so lower energy prices go a long way in keeping inflation muted." – Sonu Varghese, global macro strategist at Carson Group
"At a time when the market is trying to sort out what potential tariffs, future immigration policy, and debt and deficits mean for the multi-year outlook, a no-fuss inflation report like this one is welcome as one less thing to worry about right now. The Fed was clear that the incoming data – not speculation around potential fiscal and legislative pursuits – would continue to drive its decisions at the coming FOMC meetings. Barring a massive rebound in jobs market figures in the December 6 labor report, we think another cut is coming at the Fed's last meeting of the year." – Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management
"All told, the scale, timing and intensity of pass-through to consumer prices of all of Mr. Trump's agenda is extremely uncertain, rendering precise forecasting of inflation a futile exercise for now. But with the inflation risks overwhelmingly to the upside, the Fed cannot give the task of stabilizing the weakening labor market its sole attention. As a result, we revised up our forecast for the federal funds rate immediately after Trump's win and now look for a quarter-point easing in December followed by a pause in January, with quarter-point easings at alternate meetings during 2025." – Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics
"Discussions around 'reflation' have resurfaced and are expected to continue going forward, driven by anticipation of Trump's proposed economic policies. However, futures are currently pricing in a roughly 60% probability of another rate cut in December, following the cumulative 75 basis points of cuts at the last two FOMC meetings." – Ben Vaske, senior investment strategist at Orion Portfolio Solutions
"CPI came in as expected at 2.6% annualized, but core inflation is stuck at a monthly rate of 0.3%, rising at an annualized rate of 3.6%. Continued moderation in energy prices is offsetting other sticky sectors of the economy, allowing the headline number to track with the Federal Reserve's target. Even though headline CPI is coming down, many critical components remain sticky. The bond market is now anticipating a slower pace of rate cuts while pricing in a greater risk of elevated inflation, illustrated by the recent rise in 10-year yields." – Mace McCain, chief investment officer at Frost Investment Advisors
"Bang in-line core inflation leaves the Fed on track to cut rates in December. After a run of unseasonably hot autumn data, today's number cools fears of an imminent slowdown in the pace of rate cuts. Still, with uncertainty over fiscal and trade policies high there is a risk that the Fed may opt to slow the pace of easing as the New Year chill sets in." – Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management
"Both headline and core consumer price indices rose in October, aligning with expectations, although the topline figure showed a slight year-over-year increase. Overall prices increased by 0.2% for the fourth consecutive month, translating to an annualized increase of about 2.4%. While shelter and used car prices accelerated compared to the prior month, the pace of increase for transportation and medical services slowed down. The monthly rise for core prices (excluding food and energy) was driven by services, as commodity prices remained flat in October." – Dawit Kebede, senior economist at America's Credit Unions
"No surprises from the CPI, so for now the Fed should be on course to cut rates again in December. Next year is a different story, though, given the uncertainty surrounding potential tariffs and other Trump administration policies. The markets are already weighing the possibility that the Fed will cut fewer times in 2025 than previously thought, and that they may hit the pause button as early as January." – Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management
"Although headline and core CPI remain above the Fed’s 2% target – some may say stubbornly above – today's reading was in line with projections. Powell's most recent statement reiterated the Fed view that unemployment and inflation remain in balance, but going forward, it will be interesting to see how the policies of a new administration will change the Fed's calculus. Their data-driven approach may dictate they wait until the impact shows up in economic reports, but there is still the possibility they try to get out ahead of potential price increases." – Melissa Brown, managing director of investment decision research at SimCorp
"Today's consumer price index release was in line with expectations and similar to last month. While the data show inflation that has moderated, the reality for most Americans is that prices remain higher than previous years. Cheer will likely still be dampened for the more than half of Americans (55%) worried about their holiday finances because of rising prices. Many consumers are planning to adjust their holiday spending given the current economy – 33% are planning to purchase less expensive gifts and 31% are planning to buy fewer gifts overall – and this month's CPI likely does not change this trend." – David Royal, chief financial and investment officer at Thrivent
"Markets have much to be thankful for this November, as a 2.6% year-over-year headline inflation print suggests inflation is falling in line with the Fed's goals for long-term price growth with minimal consequences to economic activity. Core inflation remains elevated at 3.3% year-over-year but is expected to correct course as the effects of October's supply shocks subside. Housing prices continue to drive the majority of inflationary persistence, which affirms that the Fed can afford to lower interest rates and bolster stability within the labor market while further restraining excess price growth. As inflation and interest rates continue to subside, staffing companies can expect these tailwinds to lower borrowing costs and increase the rate of churn within the labor market at large." – Noah Yosif, chief economist at the American Staffing Association
"It's time to stop worrying about the Fed and inflation. Stocks have been on autopilot since the election and today's numbers do nothing to hurt the trend. December is still in play for a cut. Overall, inflation is less of an issue as attention turns to the incoming administration." – David Russell, global head of market strategy at TradeStation
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