US CPI Data Could Trigger Imminent Federal Rate Cut Decision

US CPI Data Report to Guide Federal Reserve’s Rate Cut Decision

The spotlight this week is on the upcoming US CPI data scheduled for release on October 24, despite ongoing government shutdown concerns. Market watchers and policymakers are eagerly awaiting this inflation report, which is expected to come in at 3.1%. The previous reading stood at 2.9%. This figure could significantly sway the Federal Reserve’s policy direction during its upcoming meeting on October 28-29.

US CPI Holds Key Ahead of FOMC Meeting

The Consumer Price Index (CPI) is a crucial metric for gauging inflation trends. Given that the Federal Reserve bases its monetary decisions largely on inflation and employment figures, this release has garnered heightened attention. With the job market already showing signs of strain, a softer CPI could prompt immediate action.

Should the CPI fall below expectations, markets anticipate a rate cut, accompanied by dovish remarks from Fed officials. If the figure comes in higher than forecast, a rate cut remains likely, though the Fed's tone may shift to a more cautious stance.

Economic Data Drought Leaves Fed in the Dark

The Federal Reserve faces a significant challenge as it prepares for its next policy meeting. Due to the U.S. government shutdown, key economic reports, including official employment, have not been released since October 1. This absence of fresh data leaves central bank officials navigating economic uncertainty without full visibility.

Although the Fed continues to gather some internal economic insights, external sources paint a mixed picture. Recent business surveys reveal declining consumer sentiment and lower confidence among firms. In contrast, some businesses are flagging potential price hikes, signaling persistent inflation above the 2% target.

Simultaneously, private estimates suggest economic growth may be stronger than previously thought. With new tax policies such as exclusions for tip and overtime income, household refunds might increase, possibly sparking a surge in consumer spending by early next year.

Fed Faces Tough Balancing Act Amid Uncertainty

Financial markets largely expect the Federal Reserve to lower interest rates by 25 basis points, placing the benchmark between 3.75% and 4.00%. However, without updated labor market data, officials are forced to make critical decisions in a Consumer Price Index vacuum.

David Seif, chief economist at Nomura, highlighted the uncertainty, saying officials are “flying blind” without the monthly employment report. That report, typically published by the Bureau of Labor Statistics, has been delayed due to the shutdown. The last full update was released in early September.