US Inflation Insights for October

Investing.com – Headline US inflation accelerated slightly as expected in October, according to Labor Department data that will likely be closely monitored by the Federal Reserve ahead of its upcoming policy meeting next month.

The consumer price index, a key gauge of price growth in the world's largest economy, rose by 2.6% on an annualized basis last month, compared to 2.4% in September. Month-on-month, the figure moved up by 0.2%, matching September's pace.

Meanwhile, the so-called "core" measure, which strips away more volatile items like food and fuel, increased by 3.3% year-over-year and 0.3% on a monthly basis. Both equaled the metric logged in September.

All of the readings met economists' estimates, with Charles Schwab (NYSE:SCHW) Chief Fixed Income Strategist Kathy Jones saying the report held "no surprises."

Fed policymakers will likely be keeping tabs on the numbers as they attempt to gauge the path ahead for interest rates over the rest of this year and into 2025. Traders are pricing in a roughly 69% chance the central bank will roll out a quarter-point reduction in December, as shown by the CME Group's (NASDAQ:CME) FedWatch Tool following the CPI data release on Wednesday.

The Fed slashed borrowing costs by 25-basis points last week to a range of 4.50% to 4.75%, noting that while inflation was "somewhat elevated" the risks to achieving stable price growth and a resilient jobs market were "roughly in balance."

Chair Jerome Powell stated that officials will also "patiently" consider bringing rates down further to a "neutral" setting that neither helps nor hinders economic activity. However, analysts have begun to speculate on how the Fed could adjust its stance in response to President-elect Donald Trump's policy plans.

Proposals to reduce taxes and introduce looser regulations have helped fuel a rally in stocks following Trump's election victory last week. However, some economists suggest his plans could push up inflation, potentially leading the Fed to cut interest rates at a slower pace than initially anticipated.

On Tuesday, Richmond Fed President Thomas Barkin indicated that the central bank was ready to respond to any renewed upward momentum in recently waning price growth.