U.S. CPI Ticks Up for First Time Since March as Shelter Prices Accelerate; December Rate Cut Now in Question

The Fed may soon push the rate-cut pause button. October CPI rose by 2.6% year-on-year, matching expectations and marking an increase from the 2.4% gain in September. This is the first rebound since March. On a month-on-month basis, the CPI increased by 0.2%, aligning with forecasts.

Core CPI, which excludes food and energy prices, grew by 3.3% year-on-year, in line with expectations. The month-on-month growth rate for core CPI was 0.3%, consistent for the fourth consecutive month.

The index for shelter experienced a significant increase of 0.4% in October, contributing to more than half of the monthly rise in all items. This marked an acceleration from September's 0.2% increase. The food index also saw a rise, up 0.2% over the month. Within this category, the food at home index increased by 0.1%, and the food away from home index rose by 0.2%. The energy index remained unchanged, following a 1.9% decline in September.

In response to the data, traders have started to adjust their bets on a rate cut in December. Currently, there is a 59% chance of a 25 basis point cut next month, down from 62% prior to the data release. Index futures have shown a mixed response, with the S&P 500 and Nasdaq 100 futures rising by 0.14% and 0.08%, respectively.

The as-expected CPI figures apply slight pressure on the Federal Reserve to maintain its current monetary easing stance. However, the market is beginning to consider the possibility of ending the current easing cycle by mid-next year, nearly a year earlier than the Federal Open Market Committee (FOMC) had forecasted in September. This shift is influenced by the potential return of Trump to the White House, which is anticipated to bring more corporate tax cuts, deregulation, and tariff threats, potentially exacerbating inflation.

Overall, while the October CPI figures aligned with expectations, the market dynamics and future economic policies are creating a nuanced outlook for the Federal Reserve's monetary policy and the broader economic trajectory.