CPI rebound alarm sounded? The Federal Reserve may hit the pause button on interest rate cuts early next year

According to a survey of economists by The Wall Street Journal, the Consumer Price Index (CPI) is expected to rise by 0.2% month-on-month in October. However, some of Wall Street's top inflation forecasters are betting on a 0.3% increase, which would be the highest level in six months. Meanwhile, economists generally expect the year-on-year CPI increase to rise from 2.4% to 2.6%, marking the first reversal in eight months. What people want to know is whether this signals a resurgence of inflation. Economists point out that while overall price increases in the economy have slowed, inflation remains sticky in some key areas such as rent, housing prices, auto insurance, and car repairs, suggesting that progress towards restoring inflation to "normal" levels may take more time. As a result, the inflation rate is unlikely to slow all the way down to the Federal Reserve's 2% target, and more importantly, it will not remain at target levels in the short term. In the words of Federal Reserve Chairman Jerome Powell, be prepared for a "bumpy" journey. He stated last week after the Fed's interest rate cut: "Clearly, we are not declaring victory, but we believe that inflation will continue to decline along a bumpy path and stabilize around 2% over the next few years." The closely watched core inflation rate has also not sent positive signals. The core inflation rate, which excludes food and energy, provides a better understanding of long-term inflation trends. Economists expect the core CPI to rise by 0.3% for the second consecutive month in October, a pace above the Federal Reserve's comfort level; the core CPI annual rate is also expected to remain at 3.3%, showing little change since early last summer. However, even if CPI inflation heats up in October, Wall Street still expects the Federal Reserve to cut rates again at its last meeting of the year in December. But expectations for rate cuts next year have begun to waver. The resilience of the U.S. economy has increased the uncertainty about the speed at which inflation can stabilize at 2%, as strong growth often puts greater upward pressure on inflation. This is a significant reason why investors expect the Federal Reserve to "pause" rate cuts in the first month of 2025. They now believe there will only be 3 rate cuts next year, rather than the 4 predicted by senior Fed officials at the September meeting. "We expect the Federal Reserve to cut rates again in December, but to pause rate cuts in the first half of 2025," economists at TD Securities told clients in a report. The Federal Reserve's interest rate decisions are not based on CPI; policymakers prefer to use the Personal Consumption Expenditures (PCE) price index as the best measure of inflation, but CPI can provide clues for predicting PCE