Key Points

  • The October Consumer Price Index (CPI) rose 2.6% year-over-year, up from 2.4% in September, highlighting the bumpy path the Federal Reserve faces in bringing inflation down to its 2% target.
  • Housing costs rose 0.4% month-over-month in October, contributing to more than half of the overall price increase. Excluding volatile food and energy prices, core CPI rose 0.3% month-over-month, matching August and September.
  • Scott Helfstein, head of investment strategy at Global X, said in an email that this "may not be enough to change the Fed's rate path at the December 17-18 meeting," and he expects a 25-basis-point cut in the federal funds rate, adding that "the last mile of inflation is always the hardest."

Deeper Dive

On Wednesday, interest rate futures traders bet that the Fed would take the inflation data in stride, pushing the probability of a 25-basis-point rate cut at the next meeting to 82% from 59% on Tuesday, according to the CME FedWatch tool.

"Inflation is moving sideways on a year-over-year basis, but there is nothing in today's report to alarm the Fed," analysts at BofA Securities said in a note. "A 25-basis-point cut in December remains our firm base case." A basis point equals 0.01 percentage point.

According to data from the U.S. Bureau of Labor Statistics, used car and truck prices rose 2.7% month-over-month in October, energy services prices rose 1%, and services excluding energy services rose 0.3%. Food prices edged up 0.2% month-over-month.

Minneapolis Fed President Neel Kashkari said consumer price trends, including food and energy, "seem to be confirming the path we are on," adding that "we have made a lot of progress in bringing inflation down over the past year or so."

"Right now, I think inflation is moving in the right direction—I feel confident about that—but we need to wait," Kashkari said on Bloomberg Television. "We have about a month or six weeks of data to analyze before making any decisions."

Other Fed officials also expressed caution on Wednesday about the path of monetary policy in the coming weeks.

Dallas Fed President Lorie Logan said: "I expect that the Federal Open Market Committee will likely need more rate cuts to complete this journey." But she added: "It is difficult to determine how many cuts will be needed and when they will be implemented." In a speech, she said: "I remain open to economic data and financial conditions, and I am carefully listening to business and community contacts to assess the appropriate next steps for monetary policy."

Kansas City Fed President Jeff Schmid also spoke after the inflation data release, saying it was too early to determine the endpoint of monetary easing. In his speech, he said: "While it is time to begin reducing the restrictiveness of monetary policy, how much further rates will fall or where they may eventually settle remains to be seen."

The New York Fed's Survey of Consumer Expectations showed that consumers expect price pressures to ease in the coming months. In October, the median expectation for inflation over the next 12 months fell 0.1 percentage point to 2.9%. The New York Fed said on Tuesday that households expect inflation to fall to 2.5% three years from now, down 0.2 percentage points from September's median forecast.