US CPI data for September is scheduled to be released on October 13. The Thursday release of the US consumer price (CPI) index for September is the most significant data release this week, and possibly this month.
As all eyes will be on the inflation data, after the announcement, the market will begin to speculate on whether the Fed will take a hawkish or dovish stance, going forward.
Fed officials have been speaking at various forums and are open to more rate hikes till inflation is tamed. September inflation numbers may set up a different tone for the Fed in the days ahead.
The headline inflation is expected to witness a decline, however, it is the core inflation numbers that the market will be looking for. This is how the US inflation moved between May and August – From 8.6% in May, US inflation rose to 9.1% in June and later fell to 8.5% in July before settling at 8.3% in August 2022.
As August inflation data appeared sticky with prices refusing to fall in a hurry, the US Fed remained hawkish and went for a third consecutive rate hike of 75 basis points in September.
Also Read: Fed to deliver 4th consecutive 75 bps rate hike in November
Going forward, the forecast paints a different picture. Market-implied inflation forecasts for the next two years have dropped from a high of 4.9% in March to about 2.3%, indicating that traders think price pressures would weaken closer to the Fed’s target, theoretically opening the door for a dovish policy shift.
Because the August inflation figures fell short of forecasts, the Fed decided to keep fighting inflation aggressively. Overall, the Fed raised rates by 300 basis points in 2022, and inflation may continue to be high unless it is evident that demand is declining.
Also Read – US Stock Market: Is inflation coming down?
José Torres, Senior Economist at Interactive Brokers says,” Inflation could be slowing down as demand is seen to be falling. A continued slowdown is needed for the Fed to reach its 2 percent inflation target and take its foot off the brakes. Unfortunately, the bulk of the inflationary pressure is coming from services and not goods, while wages and rents remain the primary drivers.”
Jobs data for September also showed a strong employment sector thus fueling inflationary fears. The next FOMC meeting in November calls for another 75 basis points hike but it remains to be seen how the US CPI data for September unfolds.