"The Fed's Mouthpiece": Inflation Higher Than Expected, Further Supporting Another Fed Rate Hike This Year

On October 14 that “Fed Whisperer” Nick Timiraos noted that underlying inflation exceeded expectations for a second consecutive month in September, further reinforcing the rationale for the Federal Reserve to raise interest rates again this year. Last month, Fed officials voted unanimously to hike rates, with nearly all then projecting one additional increase by year-end. The core CPI, which excludes food and energy prices, rose 0.33% month-over-month in September, beating nearly all Wall Street economists’ predictions. August’s core CPI increased 0.29% month-over-month.

This report poses two challenges for Fed officials. The more urgent question is whether they can still defer to December for another rate hike, following recent remarks indicating no change at the meeting scheduled in two weeks. Some analysts contend that if officials anticipate eventual rate increases, there is little incentive to prolong the wait, although policymakers have thus far shown no sign of revising their stance based on a single data print. A more fundamental question concerns how high rates ultimately need to rise. That trajectory depends on whether headwinds from elevated energy prices and the AI investment surge will spread throughout the broader economy. (Jin10)