September’s CPI data all but assured a rate cut at this week’s FOMC meeting. The statistics also increased the odds of yet another reduction before year’s end and a total of four by June 2026.
The core CPI, excluding food and energy, increased 0.2% from August, the slowest pace in three months. On an annual basis, it advanced by 3.0%. Both data points were 0.1% lower than expected.
The data also suggested that the tariffs are not yet a major driver of inflation. OER or what someone believes what they can rent their home for is still elevated and is a major reason as to why the CPI is still 50% higher than the mandated 2.0% speed limit. OER is closely tied to home prices and home prices and home affordability is near record lows.
Yes the markets celebrated that the CPI was lower than expected, inflation is still locked in a very tight range and is at levels are where it has been for the past several years.
Conversely or perhaps validation that inflation is still a major factor, consumer sentiment dropped to a five-month low on price concerns. According to the University of Michigan Consumer Sentiment Survey, respondents expect prices to rise by 3.9% over the next five to ten years versus a 3.7% rate expected one month ago. Moreover, the survey indicated that consumers expect prices to rise by 4.6% over the next year, down slightly from 4.7% a month earlier.
Treasury prices are largely influenced by inflationary expectations, hence a possible disconnect between current expectations of both monetary policy and Treasury prices.
Equity markets responded favorably to the data, however longer dated Treasuries sold off causing a moderate steepening in the curve.
This can be a significant week given the upcoming Fed meeting and the release of several mega cap earnings that could perhaps offer some insight into the impact of the massive spending in AI. Is this spending beginning to bear fruit?
GOOG, MSFT and META report October 29 and AMZN and AAPL post earnings on October 30.
Many believe these companies are priced to perfection hence suggesting volatility could rise if these lofty projections are not met or optimistic statements are not made.
Last night the foreign markets were up. London was up 0.07%, Paris down 0.07% and Frankfurt down 0.15%. China was up 1.18%, Japan up 2.46% and Hang Seng up 1.05%.
Dow and NASDAQ futures are up 0.45% and 1.25%, respectively, on trade optimism and ahead of a big earnings week and Fed meeting. The 10-year is off 5/32 to yield 4.03%.
