The consumer price index (CPI) rose 0.4% in October, far slower than expectations for 0.6%, the U.S. Labor Department reported on Thursday. The annual pace slowed to just 7.7% versus estimates for 8%, and down from 8.2% in September.
Core CPI – which strips out food and energy – rose 0.3% in October, slower than expectations for 0.5% and falling from September’s 0.6%. On an annualized basis, core CPI was up 6.3% in October slower than expectations for a 6.5% rise and falling from 6.6% in September.
October’s CPI is one of the major reports the Federal Reserve will see before the Federal Open Market Committee’s (FOMC) next and final meeting of the year Dec. 14-15. The FOMC is seen raising its benchmark fed funds rate for a seventh time in 2022 at that meeting.
Prior to this morning’s CPI print, futures traders on the Chicago Mercantile Exchange (CME) saw an equal chance for the FOMC to go with either a 50 or 75 basis point hike. After the report, chances for 50 basis points increased to 74%.
Behind growing expectations for the smaller move are ideas that recession risks are on the rise, with Fed Chair Jerome Powell conceding at his most recent press conference that the path to a soft landing has “narrowed.” Powell also signaled the central bank might consider a smaller rate increase in December. On the other hand, Powell said the terminal rate for this tightening cycle will likely be higher than previously forecast.
“We’ve always said it was going to be difficult, but to the extent rates have to go higher and stay higher for longer it becomes harder to see the path,” Powell said. “I would say the path has narrowed over the course of the last year.”
The Fed began its current rate hike cycle in March after inflation rose to 7.9% in February. Inflation peaked at 9.1% in June and today's report shows that pace falling below the February rate for the first time.
While bitcoin is having only a modest rally, equity futures are soaring on thoughts the inflation slowdown might mean the Fed's tightening cycle could be over sooner than previously feared. Nasdaq futures are higher by just shy of 4% and S&P 500 futures are ahead 3%. Bond markets are in rally mode as well, with the 10-year Treasury yield down a big 21 basis points to 3.93%.
UPDATE (Nov. 10, 13:44 UTC): Adds information on the Federal Reserve.
UPDATE (Nov. 10, 14:20 UTC): Adds links and edits headline.
UPDATE (Nov. 10, 15:20 UTC): Updates price of bitcoin.
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