Capital.com senior market analyst Daniela Hathorn said U.S. consumer price index data due Wednesday is expected to show headline inflation accelerated to about 3.7% in September, reflecting the impact of higher energy prices, while core inflation is seen at around 2.5%. She said the gap between the two readings matters particularly for the Federal Reserve.
According to Hathorn, the Fed raised rates in September and now faces a difficult balancing act: bringing inflation under control without putting unnecessary pressure on economic growth. Markets are currently pricing in roughly an 80% chance that the Fed will leave rates unchanged in October.
She added that a softer core reading could reinforce that expectation and offer some relief to equities and bonds. A stronger-than-expected print, by contrast, could push yields higher again and add fresh pressure on risk assets.
Capital.com senior market analyst Daniela Hathorn said U.S. CPI data due Wednesday is expected to show headline inflation accelerated to about 3.7% in September, reflecting the impact of higher energy prices, while core inflation is seen at around 2.5%.
Hathorn said the divergence between headline and core inflation is especially important for the Federal Reserve. After raising rates in September, the Fed now faces a difficult task: curbing inflation without placing unnecessary pressure on economic growth.
She said markets are currently pricing in about an 80% probability that the Fed will keep rates unchanged in October. A softer core reading could strengthen that view and bring some relief to stocks and bonds. If the data comes in above expectations, yields could rise again and risk assets could face renewed pressure.
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