Federal Reserve Chair Jerome Powell is finding reassurance in the latest U.S. inflation data as the third quarter closes. With inflation showing signs of easing, Powell and his team are contemplating potential rate cuts.
Recent reports indicate that the consumer price index (CPI) rose by just 0.1% in September, marking the smallest increase in three months. On an annual basis, the CPI is expected to show a 2.3% increase, the slowest rise since early 2021.
This data is a critical indicator for Powell as the Federal Reserve navigates between controlling inflation and maintaining a strong labor market. Core inflation, which excludes volatile food and energy prices, is projected to increase by 0.2% from August, with a year-over-year rise of 3.2%. These figures suggest that the Federal Reserve may implement a quarter-point rate cut when it meets in early November.
Balancing inflation and job growth
While inflation appears to be cooling, the labor market presents a more complex picture. The latest jobs report for September showed stronger-than-expected growth, which could fuel wage pressures. Typically, a robust labor market raises concerns about potential inflationary pressures. However, Powell remains cautiously optimistic, believing current inflation trends offer breathing room.
The producer price index (PPI), which tracks businesses’ costs, adds to this outlook. The PPI, due for release this Friday, is also expected to show a slower pace of growth. If confirmed, this would indicate that businesses are not facing steep price hikes, further contributing to easing inflationary pressures.
Fed officials, including Neel Kashkari and Lorie Logan, are set to speak this week, providing additional insights into the Fed’s thinking. Moreover, the minutes from the Federal Reserve’s September meeting, released on Wednesday, will offer further clues about the central bank’s plans.
Global central banks shift to rate cuts
While the Federal Reserve considers its next move, other major central banks worldwide are already implementing rate cuts. In Asia, the Reserve Bank of New Zealand and the Bank of Korea are expected to reduce rates this week.
New Zealand’s central bank is anticipated to cut rates by half a percentage point as weakening labor market conditions force action. Similarly, the Bank of Korea is expected to trim rates by a quarter point as inflation in the region falls to its lowest level in three years.
Elsewhere, the Reserve Bank of India will likely hold rates steady for now. However, some economists predict India could reduce its repo rate by a quarter point by year-end.
European central bank signals rate cut
In Europe, the European Central Bank (ECB) is also expected to move toward a rate cut, with the minutes of its September meeting due to be published this week. The European economy has faced growing challenges, particularly in the manufacturing sector. Germany, the region’s largest economy, has seen a significant drop in factory orders and industrial output, further pressuring the ECB to consider easing rates.
As global central banks shift towards rate cuts, the Federal Reserve’s decision in November will be closely watched. Powell balances inflation control with maintaining economic growth amid a dynamic global financial landscape.