Wall Street Reacts to the Latest US Inflation Data

Wall Street analysts have weighed in on the recent U.S. inflation data, discussing its implications for the Federal Reserve’s future decisions and market sentiment.

Consumer prices witnessed a 2.5% increase over the 12 months leading up to August, the slowest rate of growth since February 2021, a decrease from 2.9% in July.

Analysts from Vital Knowledge indicated that while the inflation report may lower expectations for a 50 basis point rate cut in the near term, it likely will not have a major influence on the Fed’s overall approach. They noted, “Even if they start small on September 18 (25bp instead of 50bp), the overall message (statement, supplemental, and press conference) is expected to be quite dovish.” They also highlighted the growing disparity between inflation rates and the Federal Funds Rate, nudging the Fed toward a potential easing of rates.

Capital Economics remarked that, despite inflation being mostly under control, persistent inflation in housing could complicate the Fed’s strategy. They anticipate a cautious approach to interest rate cuts, emphasizing that inflation has not been “completely vanquished.”

Oppenheimer focused on food inflation, reporting a slight slowdown in “food-at-home inflation,” which rose by 0.9% year-on-year in August. They characterized the inflation environment as “modestly negative” for grocery retailers, yet saw potential benefits for consumer staples in a lower rate environment.

Citi noted that the latest inflation statistics could prompt the Fed to consider a 25bp rate cut rather than the previously anticipated 50bp reduction. They pointed out that core PCE inflation appears stable, with a three-month annualized core CPI at 2.07%, which may lead to continued rate cuts into November and December.

Morgan Stanley concurred with the 25bp cut expectation, mentioning a small inflation surprise driven by service sector strength, while also suggesting that this report effectively rules out more aggressive rate cuts for the rest of the year.

Evercore ISI described the Consumer Price Index report as “dishearteningly high,” with increases in rent and airline fares driving some of the data, though they noted a general trend of cooling inflation. They foresee higher Treasury yields in the short term but maintain a positive outlook for lower future rates.

In summary, although the recent inflation data was slightly higher than anticipated, most analysts predict the Federal Reserve will choose a modest 25bp cut next week, holding a cautious yet optimistic view regarding the gradual cooling of inflation moving forward.