Federal Reserve policymakers are seen as likely to deliver a quarter-percentage-point interest-rate cut next month and continue to lower the policy rate gradually until it gets to 3.5%, or possibly lower, by late next year, based on bets in interest-rate futures contracts.
That's a slightly steeper pace of interest-rate cuts than financial markets had been pricing in before U.S. economic data published early on Thursday showed the consumer price index rose 2.4% in September from a year earlier, and weekly claims for unemployment insurance surged.
Economists had expected inflation to slow to 2.3% from August's 2.5% rate. The rise in jobless claims, attributed largely to Hurricane Helene, was bigger than expected.
After the reports, traders moved to exit what had been rising bets that the Fed could pause at next month's meeting. And while the bulk of financial market betting continues to reflect an expectation that the Fed will stop cutting the policy rate when it gets to the 3.50%-3.75% range in mid-2025, bets on a slightly lower end-point by end-2025 or early 2026 have begun to emerge.
The policy rate is currently in the 4.75%-5.00% range, after the Fed cut it by a bigger-than-expected half point last month in what policymakers have called a "recalibration" to take into account a slowing of inflation and a cooling in labor markets over the prior year.
The CPI rose 0.2% in September on month, a larger increase than the 0.1% forecast by economists, boosted by shelter and food costs.
"The larger-than-anticipated gain in the September consumer price index doesn’t signal a reacceleration in inflation, nor will it deter the Federal Reserve from cutting interest rates by 25 basis points at its November meeting," wrote Oxford Economics' Chief U.S. Economist Ryan Sweet. "The Fed needs to continue to normalize interest rates to keep the economy on the path toward a soft landing.
