According to data released by the US Bureau of Labor Statistics on Wednesday, the US CPI growth rate rose to 2.6% year on year in October, hitting a three-month high and stopping “six consecutive declines”. It rose 0.2% month-on-month, and core CPI rose 0.3% month-on-month, all in line with expectations. Wall Street analysts said that the expected CPI data almost guarantees that the Fed will still cut interest rates next month, but the market still needs to evaluate the impact of the next US President Trump on inflation after coming to power, which may cause the Federal Reserve to slow down the pace of interest rate cuts next year.

New Federal Reserve News Agency: Leave room for the Fed to cut interest rates next month

Wall Street Journal reporter Nick Timiraos, known as the “Federal Reserve News Agency,” wrote that the October CPI data left room for Fed officials to cut interest rates at next month's meeting, and the market quickly increased its bets on interest rate cuts in December.

At last week's press conference, Federal Reserve Chairman Powell hinted that the Federal Reserve is prepared to deal with higher than expected CPI data, or “fluctuations.” But he is also confident in the 12-month forecast of a gradual decline in the inflation rate.

Powell no longer believes that wage growth is the reason for the recovery in inflation. He believes that the residual stickiness of some prices reflects the lagging effect of early price increases rather than a new source of price pressure. For example, rents in the CPI are still growing at historically high levels, but the increase in rents for new apartments has been moderate for more than a year. This indicates that some existing leases are “catching up” with a trend that did not rise like new leases a few years ago.

Powell said, “This is just a catch-up issue. It doesn't really reflect current inflationary pressure, but rather reflects past inflationary pressure. Obviously we haven't declared victory yet, but we think the trend that inflation will continue to decline along a volatile path is very consistent with this situation. This trend remains constant, and a month or two of good or bad data won't really change the current pattern.”

Wall Street: We still need to watch the inflation trend after Trump came to power

Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said,

“There are no surprises in the CPI data, so currently the Federal Reserve should cut interest rates again in December as planned. Next year, however, the situation may be different. Given the uncertainty brought about by potential tariffs and other Trump administration policies, the market is already considering that the number of interest rate cuts by the Federal Reserve in 2025 may be less than previously anticipated, and the pause button may be pressed in January.”

Baird Investment Strategist Ross Mayfield:

“The risk is that the inflation data will be higher than expected, which will force the Federal Reserve to reconsider its interest rate cut cycle, and the market is already very sensitive to the possibility that inflation will rise in 2025 under the Trump administration. As a result, the CPI was in line with expectations, allowing the market to breathe a sigh of relief and focus on other factors that have recently affected the market. Any inflation data that exceeds expectations will disrupt the market's current narrative, that is, the Federal Reserve will continue to cut interest rates, which is good for risk assets.”

Matt Bush, economist at Guggenheim Investments:

“There is no data to suggest that inflation is re-accelerating or picking up. As a result, the market reacted relieved that inflation remained stable or even declined slightly month by month.”

“As 10-year US Treasury yields approach 4.4% or 4.5%, we'll see more buyers enter the market. When yields push above 4%, if these interest rates stay the same, they will only begin to have a real impact on the wider economy. We believe the yield will remain in the 4% to 4.75% range over the next few months.”

“A large part of the increase in yields reflects the resilience and strong growth of the economy, and indicates that the Federal Reserve does not need to cut interest rates as drastically as previously anticipated to support the economic slowdown. Recent data shows that economic growth has stabilized, so this growth is sustainable. However, there is great uncertainty about this view, especially in light of possible policy changes after the general election. The market is currently making assumptions in many ways, and no one really knows what the situation will be like in a year or two.”

Seema Shah, Chief Global Strategist at Principal Asset Management:

“Given market concerns about Trump's policies or inflation, today's market seems prepared for inflation data to exceed expectations. Higher than expected inflation figures could have kept the Federal Reserve on hold at the next meeting, so the data in line with expectations can almost be seen as exceeding expectations. Interest rate cuts for December are still being planned.”

“However, as the Federal Reserve is already very cautious about the risk of a resurgence in price pressure, particularly in the context of the continued strength of the US economy and Trump's policy agenda, the Fed will need to act with caution. It is expected that by the beginning of 2025, the Federal Reserve may slow down interest rate cuts instead of cutting interest rates at every meeting and instead cutting interest rates every other meeting.”

Quincy Krosby, Chief Global Strategist at LPL Financial:

“All components of the CPI were in line with expectations, which gave the treasury bond market a sigh of relief, and the 10-year yield declined slightly.”

“Stock futures rose slightly, but as the stock market has risen after several days of strong performance, the current focus is on treasury yields, as market concerns about still stubborn inflation have dominated the headlines.”

“Although the 2.6% YoY figure is in line with expectations, it may keep the Federal Reserve wary and not rush to announce its victory in controlling inflation.”

Brian Jacobsen, Chief Economist at Annex Wealth Management:

“The data is in line with expectations, but judging from the details, there may be signs of further improvement in the future. The price of durable goods decreased by 2.5% year on year, and the price of non-durable goods decreased by 0.5%. Service sector inflation remains significantly positive, but it is no longer accelerating.

The risk of inflation that could be brought about by changes in tariffs, deficits, or immigration remains uncertain, so there's no need to worry too much unless we get more details about what might happen.”