Wall Street Responds to Higher-Than-Expected September CPI Data

The U.S. inflation report for September elicited mixed reactions on Wall Street as analysts assessed its implications for the Federal Reserve’s future actions.

The Consumer Price Index (CPI) recorded a 2.4% increase in September, slightly surpassing expectations of 2.3%, although it was a decrease from 2.5% in August. On a month-to-month basis, the index rose by 0.2%, exceeding the forecast of 0.1%.

This latest figure raises questions regarding the Fed’s next steps.

Evercore ISI commented that September’s CPI reading was “slightly firmer than expected” with a “compositionally mixed” outlook. They noted a continued acceleration in core services excluding housing, while housing services inflation, particularly rents, showed signs of cooling. Despite inflation not being fully under control, Evercore ISI suggested that this data may not disrupt anticipated rate cuts in November and December. They highlighted that the Fed has moved past a phase where inflation readings dictate rate changes, projecting a 25 basis point cut at each meeting through the first quarter of 2025.

Morgan Stanley shared a similar outlook of stability, referring to the CPI report as a “mild acceleration.” They highlighted a significant decrease in shelter costs, especially owners’ equivalent rent (OER). Despite a slight rise in core goods prices, analysts reaffirmed their prediction of a 25 basis point cut in November, stating, “Nothing in the report changes our call.”

William Blair adopted a more cautious perspective, recognizing that September’s data showed “slightly less progress on inflation than hoped for.” While acknowledging the ongoing deceleration of inflation, the firm pointed out that external factors like rising oil prices and seasonal adjustments could lead to increased volatility in the coming months.

UBS indicated there may be potential “volatility” ahead, expecting core CPI inflation to fluctuate between 3.3% and 3.4% in the upcoming months. They predict a moderate increase in the October CPI but anticipate that inflation will ease after December.

Bank of America characterized the report as indicating “some stickiness on inflation” but remained hopeful about a potential 25 basis point cut in November, noting a deceleration in rent prices. They added, “We are not yet worried about reacceleration risks.”