October brought a slight uptick in inflation, with the Consumer Price Index (CPI) rising from 2.4% in September to 2.6%. This increase, although in line with economists’ expectations, has sparked renewed debate about the Federal Reserve’s future monetary policy decisions.
Minneapolis Fed President Neel Kashkari, appearing on Bloomberg TV, expressed surprise at the U.S. economy’s resilience in the face of high interest rates. While acknowledging a softening labor market, Kashkari remains optimistic about inflation’s trajectory. “I have confidence that inflation is headed in the right direction. Is it headed there fast enough? Do we want it to get there more quickly? We will see,” he stated.
However, Kashkari warned that a December interest rate cut might be off the table if inflation data continues to show unexpected strength in the coming months. This cautious outlook echoes the sentiment of Tiffany Wilding, economist at Pimco, who, while appearing on CNBC’s Squawk Box, described a December rate cut as “still an open question.” She hinted at the possibility of the Fed opting for a more gradual approach.
Joe Brusuelas, chief economist at RSM, attributed October’s higher CPI figure to a surge in used car prices (up 2.7%), airline fares (up 3.2%), and persistent inflation in housing and services. He anticipates a 25-basis point rate cut in December, bringing the rate to a range of 4.25% to 4.5%. However, Brusuelas acknowledged that his previous forecast of four 25-point cuts throughout 2025 might be jeopardized. The arrival of expansionary fiscal policy in 2025 could necessitate a pause in rate cuts, he explained.
Brusuelas also cautioned that the economic landscape could shift significantly in the coming years, potentially leading to accelerated growth amidst higher import taxes and inflation. “Elections have consequences and the immediate consensus is that the economy, which is already strong, may accelerate amidst higher import taxes and inflation,” he wrote.
