US Inflation Edges Higher in October, Keeping Federal Reserve Focused Ahead of Key Meeting

Headline inflation in the United States rose in October as anticipated, according to the Labor Department, drawing the attention of the Federal Reserve as it prepares for a pivotal policy meeting next month. The consumer price index (CPI), a primary measure of price growth in the U.S., increased by 2.6% annually, up from September’s 2.4%. On a monthly basis, CPI grew by 0.2%, maintaining the same pace as the previous month.

The core CPI, which excludes volatile food and energy prices, rose 3.3% year-over-year and 0.3% month-on-month, both consistent with September’s figures. These readings were in line with economists’ expectations.

The report, offering no major surprises, has implications for the Fed’s decisions on interest rates. Traders are currently assigning a 69% probability of a quarter-point rate cut in December, as per CME Group’s FedWatch Tool. This follows the Fed’s recent 25-basis point rate cut, which lowered borrowing costs to a range of 4.50% to 4.75%. The central bank stated that inflation remained “somewhat elevated,” but economic risks were considered “roughly balanced.”

Fed Chair Jerome Powell emphasized a patient approach to any future adjustments, aiming for a “neutral” rate that neither stimulates nor restricts the economy. However, the potential impact of President-elect Donald Trump’s economic policies, which include tax cuts and regulatory easing, has introduced uncertainty. Analysts are debating whether these policies could drive inflation higher and lead the Fed to slow down the pace of rate reductions.

Adding to the focus on inflation, Richmond Fed President Thomas Barkin expressed readiness to address any resurgence in price growth, signaling the central bank’s continued vigilance. Meanwhile, Trump’s policy proposals have spurred a rally in equity markets, even as concerns linger over their possible inflationary effects.