The Federal Reserve received some good news on Thursday regarding inflation.
The Consumer Price Index rose 7.7% in October for the year, which was a slower rate of inflation than the 8% forecast by economists. It also marks the lowest annual inflation reading since January.
Dow futures soared by more than 800 points after the news. This was due to hopes that the Fed would reduce its aggressive rate increases.
Although Jerome Powell, Fed Chair, stated earlier this month that there are still “some things to do” in the fight to curb inflation, the sentiment is growing that the Fed might be able to ease off the pedal a little.
Fed funds futures now project a near 80% chance that a Fed half-point rise will be announced at its December policymaking meeting. This is less than the three-quarters percentile point increases that the Fed announced at the four previous meetings.
Eric Merlis (Managing Director and Co-Head of Global Markets at Citizens) stated that today’s CPI report showed inflation moving in the right direction. “The Fed can use this report to justify tightening its pricing at sub-75 basis points. This is a positive development for the Fed.
Prices rose 0.4% monthly. This is the same as the 0.4% increase in prices for the previous month. Economists expected the monthly figure would rise, as energy prices rose in October due to OPEC+’s move to reduce oil production and uncertainty surrounding Russia’s war with Ukraine.
The Fed also noticed some improvements in Core CPI. This measure excludes volatile food and energy categories. It was 6.3% in October, compared to September’s 6.6%.
Core CPI rose 0.3% month-on-month. It saw monthly increases of 0.6% in August and September.
Joe Brusuelas is the chief economist at RSM and stated that this period of high inflation may be reaching an inflection point.
He stated that while I expected the Fed to raise the policy rate by 50 basis points at its December meeting,” he added. “The supersize rate increases are now likely to be in the rearview mirror.”
Although Thursday’s CPI report was an improvement over a string of higher-than-expected inflation readings on Thursday, the persistent nature of price rises remains problematic for consumers and businesses, as well as the Biden administration.
Greg McBride (chief financial analyst at Bankrate), stated that “any meaningful relief for household budgets remains somewhere over the horizon.”
He said that “in categories that are essential — shelter, food, and energy — we continue seeing large and consistent rises.” “The areas that are experiencing declines are in general either irregular or more discretionary — apparel used cars, and airfare.
According to the Bureau of Labor Statistics, shelter prices have increased 6.9% year over year. Food prices have increased by 10.9% and energy prices have increased by 17.6%. The cost of staples like eggs, bread, and milk is still high.