NEW YORK, Nov 14 (Reuters) – U.S. consumer prices were unchanged in October amid lower gasoline prices, and underlying inflation showed signs of slowing, supporting views that the Federal Reserve was probably done raising interest rates.
The unchanged reading in the consumer price index reported by the Labor Department’s Bureau of Labor Statistics (BLS) on Tuesday followed a 0.4% rise in September.
In the 12 months through October, the CPI climbed 3.2% after rising 3.7% in September. Economists polled by Reuters had forecast the CPI gaining 0.1% on the month and increasing 3.3% on a year-on-year basis.
MARKET REACTION:
STOCKS: U.S. stock index futures extend gains and were last up 1.24%, pointing to a strong open on Wall StreetBONDS: U.S. Treasury yields fell, with 2-year note last at 4.872%, and the 10-year note at 4.488%FOREX: The dollar index extended a loss and was off 0.748%
COMMENTS:
SAM MILLETTE, DIRECTOR OF FIXED INCOME FOR COMMONWEALTH FINANCIAL NETWORK, WALTHAM, MA
“This marks the lowest level of core consumer inflation since September 2021. Markets reacted positively to the update, with equity futures rising and short-term bond yields falling post-release. The rally was due to rising investor belief that the Federal Reserve will now be less likely to hike interest rates at future meetings. Futures markets are not currently pricing in a rate hike at the next FOMC meeting in mid-December, and this result supports a wait and see approach at the upcoming meeting.”
BEN JEFFERY, INTEREST RATE STRATEGIST, BMO CAPITAL MARKETS, NEW YORK
“It was definitely softer than consensus… some of the talk before the number itself was for the risk of a slightly stronger 0.3%, and so the fact that it was meaningfully lower than that was enough to bring in some buying interest in bonds. I think it diminishes the probability the Fed hikes in December and makes the bar for them to tighten again pretty high.”
GREG BASSUK, CHIEF EXECUTIVE OFFICER, AXS INVESTMENTS, NEW YORK
“October’s inflation data came in cooler than anticipated, and investors are breathing a sigh of relief knowing that this suggests the Federal Reserve may start to move from a hawkish monetary policy to a dovish stance through the end of the year and into 2024.”
“Interestingly, core CPI also came in lower than anticipated month and this downward trajectory in prices is also going to be good news for investors and consumers moving into the holiday season.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, ELM GROVE, WISCONSIN (emailed)
“You can say goodbye to the rate hiking era. Fun-flation is also coming to an end with hotel and airline fares reversing their upward pop. If the Powell Pause began in July, we’ll have to see how long he can hold rates here. In the soft-landing of 1994-95, the pause only lasted five months.”
CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, INDEPENDENT ADVISOR ALLIANCE, CHARLOTTE, NC (emailed)
“whether or not the economy can stay out of recession remains to be seen, but the stock market should continue to rally as people begin to accept that higher rates are off the table, which should push stock and bond prices higher (and bond yields lower).”
“Unemployment remains low, consumers continue to spend, and companies are earning record profits, so until a recession begins – which can take much longer than anyone previously believed – there is every reason to believe we will see the risk-on rally continue.”
LINDSAY ROSNER, HEAD OF MULTI-SECTOR FIXED INCOME INVESTING, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK
“Today’s Core CPI print was below expectations. The number was expected to be higher due in part to residual seasonality and new source data that was incorporated in the health insurance calculation. However, the important indicator on inflation in focus was OER. Big reversion from upside miss on shelter last month to a meaningful deceleration in shelter. This should solidify the Fed on hold in December.”
MATTHEW MISKIN, CO-CHIEF INVESTMENT STRATEGIST, JOHN HANCOCK INVESTMENT MANAGEMENT, BOSTON
“This is a pretty favorable report. We’re seeing further disinflation playing out. The thorn in the side of inflation continues to be shelter so that hasn’t changed. But over time housing prices are likely to decelerate. This is causing treasury yields to tumble. The dollar’s seeing weakness and equities don’t mind some good disinflation in the morning.”
“The Fed is likely in a holding pattern with a weaker jobs report and softer inflation. Another rate hike from here looks less likely from here given this softer inflation data.”
“It’s going to probably help the soft-landing camp. If the Fed doesn’t have to keep raising rates without another bout of inflation that’s going to make a soft landing for the economy a more realistic outcome.”
STUART COLE, CHIEF MACRO ECONOMIST, EQUITI CAPITAL, LONDON
“You look at the US CPI numbers and you surely question why Kashkari and Powell were so hawkish last week with their warnings that interest rates might yet be raised again. The annual figures, both headline and core, showed further modest declines. But it is the monthly numbers that are most notable, with the core rate of 0.2% pointing to an annual rate of under 2.5% and the headline rate showing inflationary pressures are no longer in evidence.”
“The Fed will not want to step back from its hawkish stance yet; the annual core rate at 4% is still some way away from target. But all in all it makes the case for further interest rate rises more difficult to make now and I think that the prospects of any rate rise being delivered in December has all but disappeared. However, the market reaction to the figures very much unwinds some of the tightening delivered to date, and with the Fed ultra-sensitive to making sure CPI does not get out of control again, we may yet hear further warnings that it is still too early to be bringing the tightening cycle to an end. The problem for the Fed now is that much of the market will probably no longer believe it.
PETER ANDERSEN, FOUNDER, ANDERSEN CAPITAL MANAGEMENT, BOSTON
“This is a slight change in the right direction, so certainly that will not harm the current narrative that the Fed has stopped raising rates, so it’s probably a good thing.”
“I’m not at all surprised that he (Powell) was very cautious (last week) and I would think that he would continue to be in a cautious tone simply because this is the early part of showing that the tightening campaign is actually taking effect.”
THOMAS HAYES, CHAIRMAN AT HEDGE FUND GREAT HILL CAPITAL, NEW YORK
“We’re happy to see both headline and core CPI come in lower than expected. It’s telling us that the Fed is done, there’s nothing left for it to do here.”
“But you have to keep an eye on the potential for deflation, but right now this is Goldilocks. This is what the Fed was looking for- slowing inflation, slowing labor market and the economy’s holding up at the same time.”
OLIVER PURSCHE, SENIOR VICE PRESIDENT, WEALTHSPIRE ADVISORS, NEW YORK
“It’s still early days, what the Fed said last week is that things are moving in the right direction so it’s too early to call a victory on inflation. So the wait-and-see on future (Fed) action remain in place.”
“Any data point that reinforces the belief that the Fed is done hiking is going to be met with an overwhelmingly positive reaction.”
“The caution in all of it is inflation data that is inconsistent. We have reports like (today’s CPI) and others that suggest that inflation remains elevated and problematic. It has not proven to be consistent yet and ultimately what investors need to be focused on is earnings.”
