Mild CPI likely keeps Fed on track

After wandering through the data desert for almost four weeks, investors finally found some relief last week in the release of slightly delayed inflation data. It lacked any major surprises, which the markets appreciated. Stocks rose, and US Treasury yields were largely unchanged. Though the 10-year yield has been on the decline since early October. After fluctuating within the 4.2%-4.5% range for much of the year, it spent last week near 4.0%. While the inflation print offered a welcome bit of clarity, the White House was quick to warn that next month’s release is unlikely to occur given the lack of surveyors during the shutdown. If so, back to the desert we go.

Both headline and core inflation increased 3.0% year-over-year. While this was a tick below economists’ expectations, it’s little changed from the prior reading. The month-over-month readings supplied slightly more optimism as both core and headline CPI growth slowed from the prior month and beat expectations. There’s still no clear evidence of a significant tariff impact in the data, as this month’s core goods inflation came in lower than the previous month. This result likely does not change the Federal Reserve’s mind when it meets next week, especially as the labor market has attracted much of its attention. The market anticipates two more 25 basis-point cuts this year.

The University of Michigan consumer sentiment survey continued to moderate, but only slightly, in October. The latest level, at 53.6, is still above the 52.2 low following the administration’s Liberation Day tariff announcements, but below where it started the year at 74. Long-run inflation expectations inched up to 3.9%, from 3.7% in the prior month. Interestingly, there was little evidence that consumers connect the government shutdown to the economy.