The annual pace of the consumer price index slowed to 7.7 percent in October from 8.2 percent in September, data released Thursday showed. Month-on-month, the index jumped 0.4%, short of the economist consensus forecast of 0.6%. After the data was released, S&P 500 futures rose nearly 3 percent on the prospect of slower rate hikes by the U.S. Federal Reserve. The yield on the two-year U.S. Treasury note, which is highly sensitive to monetary policy expectations, fell to its lowest level since late October. Trading in the futures market showed that investors now believed that a 0.75 percentage point increase in December was now less likely than previously. In a further sign of easing inflationary pressures, the “core” CPI, which excludes food and energy, rose 0.3 percent from the previous month, well below the 0.6 percent pace recorded in September . Compared to the same period last year, core inflation rose by 6.3%. The inflation data, released by the Bureau of Labor Statistics, came after unexpectedly tight midterm elections that left the battle for control of Congress still hanging. High inflation has dogged Joe Biden’s administration for most of his presidency, fueling fears of a sharp economic downturn sometime next year as the Fed steps up efforts to control price pressures. Fed Chairman Jay Powell signaled last week that the central bank would likely need to raise interest rates higher in this tightening cycle than initially expected as it grapples with an economy that has proven resilient in the face of rapid rising interest rates. Most economists now expect the so-called terminal rate to eclipse 5 percent next year, well above the 4.6 percent level most Fed officials were forecasting as recently as September. To get there, officials have begun laying the groundwork for smaller rate hikes, having raised rates by 0.75 percentage points at each of its previous four meetings. Recommended At the press conference following the November meeting, in which the Fed raised its key interest rate to a target range of between 3.75 percent and 4 percent, Powell said the central bank could reduce the pace of hikes at the December meeting or the one after that. While officials previously said they needed to see a slowdown in inflation data before they could change course, they are now taking more immediate note of how much rates have already risen this year and the fact that it takes time for those adjustments to affect the economy. As a result, less emphasis is placed on each subsequent CPI report. “We need to see inflation coming down decisively, and a good indication of that would be a series of lower monthly readings,” Powell said last week. “But I’ve never thought of that as the appropriate test for slowing the rate of increases or for determining the appropriately restrictive level we’re aiming for.” He has repeatedly warned that the higher interest rates have to rise and the longer they remain at a level that constrains economic activity, the greater the chances that the economy will slide into recession. Most economists now expect a contraction next year, with the unemployment rate rising significantly above the current level of 3.7%.
