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Overall inflation stayed flat on a monthly basis in October — with the exception of shelter costs, which offset a decrease in other sectors, according to the Consumer Price Index, a broad measure of consumer goods pricing.
The index for shelter rose 0.3 percent between September and October and was up 6.7 percent year over year, offsetting a 5 percent decline in gasoline prices and a 2.5 percent overall decrease in energy prices. This resulted in flat overall inflation for the month, according to CPI data released Tuesday.
Year over year, the all-items inflation index was up 3.2 percent, just below the forecast of 3.3 percent but still above the Federal Reserve’s target of 2 percent.
“After two months of stable inflation, the Bureau of Labor Statistics reports this morning that inflation fell to 3.2 percent in October. The drop is a welcome sign, but it may not be enough just yet for the Fed to be satisfied that its work is done,” Bright MLS Chief Economist Lisa Sturtevant said in a statement. “Data on where consumers expect inflation to be suggests that bringing inflation down to the 2 percent target may be getting harder.”
Investors seemed to conclude, based on the report, that the Federal Reserve was done raising interest rates. Yields fell sharply across Treasurys with the 10-year yield declining nearly 0.2 percentage point to 4.442 percent. The yield on the 2-year Treasury note, which is particularly sensitive to Fed policy expectations, plunged by a similar margin, to 4.855 percent. Futures tied to the Dow Jones Industrial Average were up 300 points as Treasury yields fell.
UBS Investment Bank predicted significant cuts to interest rates next year beginning as early as March, and that slowing inflation could enable a 2.75 percent decrease in the interest rate over the course of the year. The firm predicted that the U.S. economy will fall into a recession by the second quarter of next year, enabling a rate cut. Rates will fall as low as 1.25 percent by 2025, the market experts predict.
“Inflation is normalizing quickly and by the time we get to March, the Fed will be looking at real rates which are very high,” UBS Chief Strategist Bhanu Baweja told Bloomberg.
Following the publication of the CPI report, the odds of a rate hike at the Fed’s December meeting dropped from 14 percent to 0 percent, Harvard Economic Policy Professor Jason Furman posted on X, formerly Twitter.
Other economists are less certain, however.
“The Fed will continue to watch the economic data while they are having to make policy decisions in an economic environment unlike any we’ve ever seen,” said Sturtevant. “A soft landing is still possible but the road to getting there is definitely still filled with uncertainties.”
