US consumer prices rose steadily in October, with inflation continuing to outpace the Federal Reserve’s target. This can potentially affect the outlook for interest rate policy next year. According to the Bureau of Labor Statistics, the consumer price index (CPI) increased by 0.2% for the fourth consecutive month. On an annual basis, the CPI rose by 2.6%, up from 2.4% in September. These figures aligned with economists’ expectations, who had predicted a 0.2% monthly gain and a 2.6% year-over-year increase.
This uptick in annual inflation partly results from the removal of last year’s lower readings from the calculation. Although inflation has slowed considerably from its 9.1% peak in June 2022, it remains above the Fed’s 2% goal. Progress toward low inflation has slowed since mid-year, suggesting the central bank may be less inclined to aggressively cut interest rates in 2024.
Political developments are also adding complexity to the economic landscape. Frustration with inflation was a key factor in Donald Trump’s victory over Vice President Kamala Harris in last week’s presidential election. Trump’s proposed economic policies, including tax reductions and higher tariffs on imported goods, are expected to push inflation higher next year. His pledge to deport undocumented immigrants has also raised concerns among economists, who warn that a reduced labor supply could elevate business costs, ultimately affecting consumers.
While the Fed is anticipated to implement another rate cut in December, economists believe the chances for significant further reductions in 2024 are limited. This outlook has prompted U.S. Treasury yields to surge, as investors brace for the likelihood of an expansionary fiscal approach under a Trump administration and unified Republican control of Congress.
Currently, the Federal Reserve’s benchmark interest rate sits in the 4.50%-4.75% range after a series of rate hikes totaling 525 basis points in 2022 and 2023. The central bank initiated rate cuts only recently, including a notable half-point decrease in September. In October, core inflation—excluding food and energy—rose 0.3%, marking the third month of such gains, and advanced 3.3% over the past year.
According to CME Group’s FedWatch Tool, the probability of a 25 basis point rate cut at the Fed’s December policy meeting stands at 58.7%, with a 41.3% chance of rates remaining unchanged. The evolving economic and political landscape continues to keep policymakers and markets on alert.
The Fed has initiated a rate cut campaign in response to declining inflation, reducing interest rates by a total of 75 basis points. In September, the central bank lowered rates by 50 basis points, followed by a 25 basis point cut at the November FOMC meeting. The next FOMC meeting is scheduled for December 17-18.
(With inputs from agencies)