Key Takeaways

  • Inflation remained stable in September, according to data released by the U.S. Bureau of Labor Statistics on Friday, strengthening the case for the Federal Reserve to cut its benchmark interest rate for a third consecutive time on December 10.
  • The core Personal Consumption Expenditures price index, the Fed's preferred inflation gauge, which excludes volatile food and energy prices, rose 0.2% month-over-month in September, marking the third consecutive month of such gains. The index rose 2.8% year-over-year, the Bureau of Labor Statistics said, still above the Fed's 2% inflation target. The report was delayed due to the federal government shutdown.
  • "The somewhat dated September inflation report shows prices remained relatively stable despite tariffs and strong consumer spending," Scott Helfstein, head of investment strategy at Global X, said in a statement. "This could provide further support for a Fed rate cut in December."

Deep Dive

Fed officials will begin their two-day meeting on December 9, but are unusually divided over the best path for monetary policy, according to analysts and the Fed's most recent meeting minutes.

Gregory Daco, chief economist at EY-Parthenon, said Friday that the Fed could cut the federal funds rate by 25 basis points to a range of 3.5% to 3.75%, but the decision could come with "dissents in both directions, reflecting policymakers who are not only divided but increasingly polarized into factions."

Daco noted that Kansas City Fed President Jeffrey Schmid and possibly St. Louis Fed President Alberto Musalem would likely dissent, arguing for holding rates steady and pointing out that inflation remains above target. Fed Governor Stephen Miran, meanwhile, might advocate for boosting the weak labor market and dissent in favor of more easing. Daco said in an email.

"We expect Fed Chair Jerome Powell to persuade several hesitant policymakers to support a third consecutive 'risk-management' rate cut, while strongly signaling that significant further easing is unlikely before spring unless the economy shows substantial weakness," Daco said.

Joanne Hsu, director of the University of Michigan's consumer survey, said Friday that consumer concerns about inflation and the job market persist.

Although household sentiment rose slightly in November compared to October, "the overall tone of views is generally pessimistic, with consumers continuing to complain about the burden of high prices," Hsu said. "Labor market expectations improved slightly but remain relatively subdued," she said in a statement.

In recent months, the labor market has shown multiple signs of cooling, with the unemployment rate rising to 4.4% in September and the pace of hiring slowing.

The Bureau of Labor Statistics has delayed the November jobs report to December 16, six days after the policy meeting ends. Due to the government shutdown, the bureau did not release the October jobs report.

Over the past few weeks, unofficial indicators of labor market health have deteriorated.

The Conference Board said on November 25: "Expectations for labor market conditions in mid-2026 remain clearly pessimistic." In describing the results of its monthly consumer confidence survey, the organization noted that only 27.6% of consumers viewed jobs as "plentiful," down 1 percentage point from October.

As for the National Federation of Independent Business, 56% of small business owners reported hiring or trying to hire in October, down 2 percentage points from the previous month, the organization said last month.