Inflation Ticks Down Less Than Expected As Fears Of Hot Economy Grow

Inflation fell slightly in September amid fears of a hotter-than-expected economy following strong job gains in the month prior, according to the latest Bureau of Labor Statistics (BLS) release Thursday.

The consumer price index (CPI), a broad measure of the price of everyday goods, increased 2.4% on an annual basis in September and rose 0.2% month-over-month, compared to 2.5% in August, less than the 2.3% rate that was expected, according to the BLS. Core CPI, which excludes the volatile categories of energy and food, rose 3.3% year-over-year in September, compared to 3.2% in August.

Meanwhile, September job growth far exceeded economists’ expectations of 150,000 jobs, with the U.S. economy adding 254,000 nonfarm payroll jobs and the unemployment rate ticking down to 4.1%. The strong jobs numbers reduced fears of an economic slowdown but revived the possibility of a “no landing” scenario in which inflation resurges and the Federal Reserve runs out of room to lower interest rates, particularly since it followed the Fed’s 0.5% September rate cut, according to Bloomberg.

“The pain trade was always higher-front end rates due to less rate cuts being priced in,” George Catrambone, head of fixed income at global asset manager DWS Americas, told Bloomberg. “What could happen is the Fed either delivers no more rate cuts, or actually finds itself having to raise rates again.”

Roughly 80% of interest rate traders expect the Fed to lower their target federal funds rate an additional 0.25% at the next Federal Open Market Committee (FOMC) in November, while the remainder expect the FOMC to hold rates steady, according to the CME Group’s FedWatch Tool.

Inflation under President Joe Biden reached 9% year-over-year in June 2022, up from 1.4% when he took office. Meanwhile, prices have risen more than 20% since Biden’s inauguration, helping push delinquent credit card balances to their highest level in twelve years during the first quarter of 2024.

U.S. gross domestic product (GDP) grew 3% in the second quarter of 2024, beating economist expectations of 2.1% and coming in well above the 1.6% growth rate seen in the first quarter.