US consumer prices increase less than expected in September

Core Insights - The recent Consumer Price Index (CPI) data indicates a 0.3% increase in September, following a 0.4% rise in August, with a year-over-year increase of 3.0% compared to 2.9% in August, suggesting inflation remains manageable [3][10] - The Federal Reserve is expected to cut rates next week, with market expectations indicating at least two more cuts by March, as the current inflation data provides them with more flexibility [1][5][12] - The impact of tariffs on consumer goods prices is becoming more evident, particularly in categories like apparel, which may continue to rise through the end of the year [1][6] Economic Context - The CPI report was delayed due to a government shutdown but was released to assist in calculating cost-of-living adjustments for Social Security recipients [2] - Despite some underlying inflation pressures, the report's softness is attributed to noisy rent components, indicating that disinflation may not be significant moving forward [2][4] - The bond market reacted positively to the CPI data, suggesting that the market is supportive of potential rate cuts, which could enhance liquidity [4][5] Market Reactions - Initial market reactions to the CPI data were favorable, with a relief noted in futures markets, bonds, and commodities, indicating that investors are optimistic about the Fed's potential rate cuts [4][5][12] - The dollar experienced a temporary decline following the CPI report, but expectations of Fed rate cuts are likely to stabilize the dollar in the long run [8][9] - The market is currently pricing in an 88% probability of two additional rate cuts this year, reflecting strong investor sentiment towards the Fed's accommodative stance [12]