Cooler Than Expected, Yet Higher Than It Should Be

Inflation, emergency data, and Shutdown

The markets rallied on Friday after inflation came in lower than expected. Economists had forecast a 3.1% annual rate, but the actual reading was 3.0%.

That may sound trivial, but it signals something important: the Federal Reserve might finally have room to cut interest rates when it meets this week. Their decision will be announced at 2 p.m. on Wednesday, October 29, and markets are expecting another 25 basis-point cut.

What the Inflation Data Says

A couple of things stand out:

• The monthly change in CPI is rising. The monthly Consumer Price Index (CPI) gain was 0.3%, suggesting short-term price pressures are building.

  

• Year-over-year inflation remains elevated. The CPI rose 3.0% year over year, up from 2.3% in April. This is the figure most people are familiar with and the one used to gauge overall inflation.

  

The Government Is Shut Down — So How Did We Get This Data?

We’re essentially driving this economy without a full dashboard.
Because of the ongoing government shutdown, many regular economic reports have been delayed or suspended.

This CPI report was supposed to be released on the 15th. The only reason we have it now is that the government temporarily recalled some employees to calculate the annual cost-of-living adjustment for Social Security recipients.

The Week Ahead

The government shutdown remains the key story this week.
We are now 27 days in, just eight days away from breaking the record for the longest shutdown in U.S. history. Missed paychecks and delayed SNAP benefits will soon hit millions of households.

The question is: Are we getting closer to a deal?
Will Democrats hold the line, or will Republicans finally negotiate over ACA subsidies?