Investing.com -- Headline inflation in the US slowed on an annualized basis in September, but was still faster than expectations, presenting a potential dilemma for Federal Reserve officials as they consider further possible interest rate reductions this year.
The consumer price index (CPI), a crucial gauge of US headline inflation, decelerated to 2.4% versus 12 months ago, down from 2.5% in August. Economists had seen the figure at 2.3%.
Month-on-month, the reading matched August's pace of 0.2%. It was tipped to cool slightly to 0.1%.
Meanwhile, so-called "core" CPI, which strips out more volatile items like food and fuel, unexpectedly accelerated to 3.3% year-on-year, hotter than forecasts that it would be in line with August's pace of 3.2%.
On a monthly basis, core consumer price growth came in at 0.3%, equaling the prior month's rate. The number was projected to ease to 0.2%.
Elsewhere, separate data showed that seasonally-adjusted claims for first-time unemployment benefits climbed to 258,000 in the week ended on Oct. 5, up from an unrevised level of 225,000 in the prior week. It was the highest level for initial claims since August 2023.
The four-week moving average, which aims to account for fluctuations in weekly jobless claims, also edged up by 6,750 to 231,000.
Both of the data points come as Fed policymakers attempt to engineer a "soft landing" for the US economy, in which a period of elevated interest rates successfully quells inflation without sparking a deep downturn in labor demand or broader activity.
Last month, the Fed slashed borrowing costs by an outsized 50 basis points, arguing that it was necessary to help underpin the jobs market during a time of waning inflation. However, minutes from the meeting released this week indicated that an unspecified number of officials backed a smaller quarter-point cut, citing concerns that the pace of price growth remains above their stated 2% target.
Traders are pricing in about an 85% chance the Fed slashes rates by another 25 basis points at its November meeting, the CME Group's (NASDAQ:CME) FedWatch Tool showed. Meanwhile, there is a roughly 14% probability that rates are left unchanged at the current range of 4.75% to 5.00%.
Analysts at Vital Knowledge said the "knee-jerk takeaway" from the latest slew of data is "negative" and could raise fears over stagflation, or a weak jobs picture combined with hotter prices. However, they said the Fed is unlikely to look at the figures and think "dramatically differently of the world," with bets in tact for 25-basis point drawdowns at each of the central bank's final two gatherings of 2024.
"That said, since [rate-setting Federal Open Market Committee] rhetoric of late has swung aggressively toward the labor end of the mandate, Powell and his colleagues will likely spend more time scrutinizing the claims than the CPI," the analysts said.