As the Federal Reserve weighs its next move, the latest inflation report offers a mixed, yet compelling, snapshot of our economy’s trajectory. Expected to be released at 8:30 a.m. ET on Wednesday, the October report is likely to show headline inflation at 2.6%, a small uptick from September’s 2.4% annual rate, which was the lowest seen since February 2021. Monthly gains are expected to repeat September’s moderate 0.2% increase, signaling a steady—but is it sustainable?—return to balance.
Beneath the headline, core inflation, which excludes volatile food and gas prices, continues to stick around 3.3% annually, marking the third straight month at this level. While steady, this figure still reflects resilient costs in areas like housing, insurance, and medical care. So, while some see this as progress, others might wonder: could stubbornly high core inflation suggest deeper, unresolved pressures? Wells Fargo’s lead economist Jay Bryson cautions that this “last mile” of the inflation journey could be the hardest—and some might say that we’re only beginning to feel its real challenge.
Bank of America economists Stephen Juneau and Jeseo Park also see October’s report as a sign of inflation “moving sideways” after a substantial cooling period earlier this year. This stability could be the foundation for reaching the Fed’s 2% target, or it might be a warning that inflation isn’t ready to back down entirely.
Election Results Could Stir Up Inflation Waters
As inflation lingers slightly above target, the outlook isn’t just about the numbers—it’s about politics. With Donald Trump now set to return to the White House, the coming months could bring policy shifts that radically alter inflation’s course. Trump’s campaign pledges, including high tariffs on imports, corporate tax cuts, and reduced immigration, could bring an inflationary resurgence, even as the Fed works to keep prices stable.
Fed Chair Jerome Powell, however, insists the central bank will not adjust its decisions based on anticipated political changes. “In the near term, the election will have no effect on our policy decisions,” Powell said, emphasizing the Fed’s focus on its dual mandate of price stability and maximum employment. Yet, for markets, the mere prospect of change creates ripples—investors are pricing in a potential 25-basis-point rate cut in December but growing increasingly uncertain, with the probability of a rate hold jumping from 22% to 35% in the past week.
Markets Hold Their Breath as the Fed Considers Its Move
This inflation report sets the stage for a December showdown, with the Fed aiming to balance inflation management with economic support. Bank of America’s Juneau and Park argue that Powell’s recent remarks position the Fed for a 25-basis-point rate cut, yet the growing resilience of the U.S. economy means the Fed might choose caution instead. “While fundamentals suggest inflation should continue to moderate, policy changes pose an upside risk to the outlook,” they wrote.
So, where does this leave us? On one hand, inflation remains steady—manageable, if a bit stubborn—pointing to economic stability. On the other, the incoming administration, possible policy shifts, and market jitters paint a less predictable picture. As the Fed weighs its options, one thing is clear: economic uncertainty could become the new normal, challenging both markets and the central bank to adapt quickly.
The Road Ahead: Inflation at a Crossroads
With October’s inflation report, the economy is teetering between stability and potential disruption. The Fed’s commitment to inflation control, coupled with unpredictable political winds, creates a precarious path forward. While we may see inflation moderate further, we may also find that the price of stability has risen—leaving both the Fed and the American public to navigate a changing economic landscape.
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