October CPI Figures released by the Labor Department show that inflation is slowing in the US, even though rate hikes may not be over.
The Consumer Price Index (CPI) remained flat in October, better than economists’ expectations that the CPI would rise by 0.1%. Core CPI also came in lower than expected at 0.2%, over the 0.3% expected. The CPI measures a range of goods and services commonly used in an economy. However, core CPI does not include food and energy costs.
These figures show a slight improvement in US inflation data. The October CPI was also better than the 0.4% increase in September.
October’s core CPI was better than the expectation for October, and also the 0.3% recorded in September. Also, it was higher by 4.0% year over year (YoY), better than the 4.1% expected YoY, and in September.
Fed May Not Be Done Hiking Rates despite October CPI
The market has seen some respite regarding headline CPI inflation, which has been slowly reducing for a while. However, it is still not yet at the Federal Reserve’s 2% target. The figures indicate that the Federal Open Market Committee (FOMC) may not be completely done with increasing interest rates again. The Fed has previously suggested that it could effect one more hike before suspending the tightening cycle.
Market traders are pricing in the chance that the Fed will leave rates unchanged at the December meeting. According to the CME FedWatch Tool, pricing suggests only a 5.5% chance of a hike and a 94.5% chance that rates will remain unchanged. For the January meeting, the possibility of rates remaining stagnant is 90.8%, with a 5.3% chance of a hike. Interestingly, this leaves a 3.9% chance that the FOMC will ease rates. These figures rose immediately after the CPI figures were published. Before that, the market priced in an 86% chance of stagnant rates for December, and 75% in January.
Crypto and Traditional Markets React to CPI
The Nasdaq 100 futures gained 1.9% on the indication of positive inflation, while the S&P 500 futures rose 1.4% instead. The Dow Jones Industrial Average (DIJA) also jumped, by about 500 points. In addition, the 10-year Treasury yield fell to 4.476%, losing 16 basis points. According to Sit Fixed Income Advisors portfolio manager Bryce Doty, the Fed may have stopped its rate hikes and is “smart” for doing so:
“The Fed looks smart for effectively ending its tightening cycle as inflation continues to slow. Yields are down significantly as the last of investors not convinced the Fed is done are likely throwing in the towel.”
In the crypto market, there are barely any reactions to the CPI figures. For instance, Bitcoin is trading at nearly $35,600 after climbing more than 1% over the last 7 days. However, as of this writing, the king coin’s price has fallen about 3% over the past 24 hours. Interestingly, Ether (ETH) is seeing better 7-day improvement at 5.36%, even though it fell 3.78% on the last day, worse than Bitcoin. As the major coins struggle, others like Solana (SOL) and Polygon (MATIC) are doing much better, rising 33% and 25% respectively, over the last 7 days. Their 24-hour figures show gains of 6.32% and 2.47%, respectively.