The US CPI in September was lower than expected! The prospect of a Fed rate cut is solidly supported.

The overall CPI in the United States in September was lower than expected, providing solid support for the Federal Reserve to further cut interest rates next week. Data released by the U.S. Bureau of Labor Statistics on Friday showed that the overall CPI in the United States rose by 3.0% year-on-year in September, lower than the market expectation of 3.1%; the overall CPI rose by 0.3% month-on-month, lower than the market expectation of 0.4%. At the same time, the core CPI, excluding volatile categories such as food and energy, rose by 3.0% year-on-year, lower than the market expectation of 3.1%; the core CPI rose by 0.2% month-on-month, the slowest growth in three months, lower than the market expectation of 0.3%. Specifically, in the breakdown of the data, the prices of goods excluding food and energy categories slowed down, mainly due to the drag from the decrease in prices of used cars. Prices of categories with higher relevance to tariffs (such as household goods and entertainment products) have increased slightly. Clothing prices showed the fastest growth in the past year. In addition, service prices excluding energy rose by 0.2% month-on-month, restricted by the smallest increase in housing costs since the beginning of 2021. The rise in airfare prices slowed down, while car insurance prices decreased. The lower-than-expected inflation data brought a positive surprise, especially for Federal Reserve officials who were cautious about further rate cuts. Although the market generally expects the Federal Reserve to cut rates at the upcoming meeting, this latest inflation report may further enhance policymakers' confidence in cutting rates again in December, especially in the absence of other official economic data due to the government shutdown. After the release of the September CPI data, U.S. stock futures rose, while the U.S. dollar index and U.S. bond yields both declined. As of the time of writing, according to the "Fed Watch" tool of the CME Group, the probability of a 25 basis point rate cut by the Federal Reserve at the October meeting is 98.9%, and the probability of another 25 basis point rate cut at the December meeting is 96.5%. Although inflation remains above the Fed's target level, some analysts believe that employment has replaced inflation as a higher priority consideration for the Fed's monetary policy decisions. Kristy Akullian, Chief Investment Strategist at BlackRock Americas, said before the release of the September CPI data tonight: "I don't think anything we see in the CPI data will change the outcome of the Fed's October meeting. From what we are hearing from the Fed in terms of language, it's clear that they see rates as being restrictive, so at this point, the bias is towards cutting rates." "I think the more important factor they are focusing on now is the labor market and how weakness there might transmit to the real economy."