The U.S. inflation report for September sparked mixed reactions on Wall Street as analysts weighed in on the implications for the Federal Reserve's next move.
The Consumer Price Index came in at 2.4% in September, slightly above expectations of 2.3% but down from 2.5% in August. Month-on-month, the index climbed 0.2%, just above expectations for 0.1%.
The latest reading raises questions about the Federal Reserve’s next move.
Evercore ISI said in a note that September’s CPI print was "slightly firmer than expected" but "compositionally mixed."
They said the report showed a continued acceleration in core services excluding housing but also a cooling in housing services inflation, particularly rents. Evercore ISI emphasized that while inflation hasn’t been fully tamed, the data may not jeopardize anticipated rate cuts in November and December. “The Fed is anyway beyond the phase when inflation readings were determining the rate path,” said the analysts, indicating a baseline expectation of a 25 basis point cut per meeting through Q1 2025.
Morgan Stanley echoed the sentiment of stability, calling the CPI report a “mild acceleration” but pointing out that shelter costs, particularly owners’ equivalent rent (OER), came down meaningfully. Despite a slight uptick in core goods prices, the analysts maintained their forecast for a 25 basis point cut in November. “Nothing in the report changes our call,” they said.
William Blair took a more cautious tone, acknowledging that September showed "slightly less progress on inflation than hoped for." The firm noted that while the trend of inflation continues to decelerate, external factors such as the spike in oil prices and seasonal adjustments could introduce volatility in the coming months.
UBS warned of possible "volatility" ahead, with core CPI inflation projected to bounce between 3.3% and 3.4% over the next few months. The analysts forecast a moderate strengthening in the October CPI, but they believe inflation will ease after December.
Bank of America described the report as showing "some stickiness on inflation" but remained optimistic about a potential 25 basis point cut in November, citing deceleration in rent prices. ”We are not yet worried about reacceleration risks,” said the bank.