Key Points

  • Torsten Sløk, chief economist at Apollo Global Management, said in an email that the increases in most items in the Consumer Price Index (CPI) are well above the Federal Reserve's 2% long-term target.
  • Sløk noted: "Looking at the annualized month-over-month growth rate, 55% of items in the CPI basket have risen more than 3%."
  • "This is exactly why the Fed will find it difficult to cut interest rates in December," Sløk said. The CPI covers eight major categories of goods and services, ranging from transportation and healthcare to clothing and housing.

Deeper Analysis

Ahead of the federal funds rate adjustment meeting scheduled for December 9-10, signs of divergence have emerged among Federal Reserve officials. Some officials have warned that lowering borrowing costs could trigger inflation risks.

In response to a cooling labor market, the Fed cut its key interest rate by 25 basis points on October 29 to a range of 3.75% to 4%, marking the second rate cut this year.

Two policymakers dissented: Kansas City Fed President Jeffrey Schmid advocated holding rates steady, while Fed Governor Stephen Miran called for a 50-basis-point cut to the benchmark rate.

Although Fed Chair Jerome Powell confirmed that the decision received "strong and solid voting support," he also noted that there is "strong disagreement" among policymakers over whether to cut rates again at the final meeting of the year, the December meeting.

According to data from CME Group's FedWatch tool, interest rate futures traders see a 43.9% probability of a 25-basis-point rate cut by the Fed next month, down from 66.9% on November 7.

Since the last meeting, Schmid and several other regional Fed presidents have expressed caution about further rate cuts.

"In my view, inflation remains too high, the economy shows continued momentum, and the labor market, while cooling, is broadly balanced," Schmid said in a speech today.

"Moreover, I believe the current monetary policy stance is only moderately restrictive, which is roughly in line with the level I expect," he added.

The CPI rose 3% year-over-year in September, 0.1 percentage points higher than in August. The core CPI, which excludes volatile food and energy prices, also rose 3%.

Atlanta Fed President Raphael Bostic said Wednesday that the CPI increase indicates that the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose 2.7% in September.

"It's important to remember that inflation has exceeded the Federal Open Market Committee's 2% target for nearly five years," Bostic said, who favors keeping borrowing costs unchanged.

"I see little evidence that price pressures will dissipate before mid-2026, at least not until then," he said, noting that U.S. import tariffs have risen to their highest levels since the 1930s.

White House Press Secretary Karoline Leavitt said Wednesday that due to data release restrictions caused by the record government shutdown, policymakers will not have October inflation and unemployment data when they meet next month.

She said the lack of basic data "leaves Fed policymakers flying blind during a critical period."

Bostic said the same day, "We are not flying blind," citing three surveys showing many companies plan to raise prices.

"The bottom line is that businesses in our surveys expect to raise prices throughout 2026, and by much more than 2%," Bostic said.

"What is particularly concerning and worrying is that inflation expectations are not limited to importers directly affected by import tariffs," he said.

"Instead, our surveys show that inflation expectations spill over significantly to other businesses and trigger other reasons for price increases, such as raising prices to match competitors' increases," Bostic said. "In other words, businesses have room to raise prices, and so, as one might expect, profit-maximizing firms say they plan to do so."