Wall Street saw mixed reactions following the release of September’s U.S. inflation data, which came in slightly above expectations and sparked speculation about the Federal Reserve’s future actions.
The Consumer Price Index (CPI) showed a 2.4% year-over-year increase for September, compared to the forecasted 2.3%, but lower than the 2.5% reported in August. On a monthly basis, the CPI rose 0.2%, just above the expected 0.1%.
The latest CPI figures have raised questions about whether the Fed will adjust its approach to interest rates in the coming months. While inflation remains a concern, some analysts believe the current data may not disrupt the Fed’s anticipated rate cuts for the remainder of the year.
Evercore ISI commented that September’s inflation reading was “slightly firmer than expected” but showed a mixed composition. The firm highlighted continued acceleration in core services inflation, excluding housing, but noted a slowdown in housing-related services, particularly in rent costs. Despite the mixed data, Evercore ISI suggested that inflation pressures may not be enough to alter the Fed’s planned rate cuts for November and December. The firm maintained its outlook of a 25 basis point cut at each meeting through the first quarter of 2025, arguing that the Fed is shifting its focus away from inflation as the main determinant of rate decisions.
Similarly, Morgan Stanley referred to the CPI report as a “mild acceleration” but pointed out a meaningful decrease in shelter costs, especially the owners’ equivalent rent (OER), a major component of housing inflation. Despite a minor rise in core goods prices, Morgan Stanley maintained its expectation of a 25 basis point rate cut in November, stating that the new data did not alter their outlook.
In contrast, William Blair expressed a more cautious view, noting that the September CPI showed “slightly less progress on inflation than expected.” The firm mentioned that while the broader trend of inflation is decelerating, external factors like rising oil prices and seasonal adjustments could lead to greater volatility in the coming months.
UBS analysts warned of possible fluctuations in inflation data, predicting core CPI inflation to range between 3.3% and 3.4% over the next few months. While they foresee a moderate strengthening in October’s CPI, UBS expects inflationary pressures to ease after December.
Bank of America acknowledged “some stickiness on inflation” in the September report but remained optimistic about a 25 basis point rate cut in November. They pointed to a slowdown in rent prices as a positive sign, adding, “We are not yet worried about reacceleration risks.”
Overall, the mixed responses from major financial firms reflect uncertainty around how the Fed might respond to the current inflation environment, with many analysts maintaining their expectations for gradual rate cuts in the coming months despite the slight uptick in the latest CPI reading.
