Tonight at 20:30, September CPI will be released. This is one of the most important macroeconomic data releases of the year.
Market expectations (consensus across several institutions):
- Headline CPI: 3.6% (previous: 3.4%), +0.6% month over month
- Core CPI: 2.5% (previous: 2.4%), +0.2% month over month
The key tension: headline and core inflation differ by 1.1 percentage points, almost entirely because of energy. Brent crude is at $106, up 70% year over year. But the Fed is really focused on core inflation—especially the monthly change in core CPI.
Three scenarios:
1. Core CPI rises 0.2% month over month (in line with expectations): The energy-driven explanation holds up, and the Fed can wait. A December rate hike remains the base case.
2. Core CPI rises 0.3% or more month over month: Rate-hike expectations move forward, and the odds of a hike at the October 28 meeting jump from 25% toward 50%.
3. Below expectations: Markets breathe a sigh of relief, and rate-cut expectations revive.
Background: The federal funds rate is 3.75%–4.00%, and the Fed is still in a rate-hiking cycle. Markets price in a 77% chance of no change on October 28 and an 85% chance of at least one more hike before December. New York Fed President Williams said yesterday that there will be one more hike this year, but none in 2027.
Tonight, focus on the monthly change in core CPI—not just the headline number.
#CPI #Macro
Personal opinion only; this does not constitute investment advice.
Market expectations (consensus across several institutions):
- Headline CPI: 3.6% (previous: 3.4%), +0.6% month over month
- Core CPI: 2.5% (previous: 2.4%), +0.2% month over month
The key tension: headline and core inflation differ by 1.1 percentage points, almost entirely because of energy. Brent crude is at $106, up 70% year over year. But the Fed is really focused on core inflation—especially the monthly change in core CPI.
Three scenarios:
1. Core CPI rises 0.2% month over month (in line with expectations): The energy-driven explanation holds up, and the Fed can wait. A December rate hike remains the base case.
2. Core CPI rises 0.3% or more month over month: Rate-hike expectations move forward, and the odds of a hike at the October 28 meeting jump from 25% toward 50%.
3. Below expectations: Markets breathe a sigh of relief, and rate-cut expectations revive.
Background: The federal funds rate is 3.75%–4.00%, and the Fed is still in a rate-hiking cycle. Markets price in a 77% chance of no change on October 28 and an 85% chance of at least one more hike before December. New York Fed President Williams said yesterday that there will be one more hike this year, but none in 2027.
Tonight, focus on the monthly change in core CPI—not just the headline number.
#CPI #Macro
Personal opinion only; this does not constitute investment advice.