US Inflation Data Paves Way For Further Interest Rate Cuts By The Federal Reserve

Inflation in the United States reached 3 per cent in September, marking the first occasion this year it has done so and coming in below economists’ expectations. Annual consumer prices increased from 2.9 per cent in August, yet remained just beneath the forecasted 3.1 per cent figure. While inflation is now moving at its fastest rate since January, market expectations continue to point towards another interest rate cut by the Federal Reserve next week.

This latest inflation report follows a period where data releases have been hampered by a federal government shutdown, limiting access to broader economic statistics. Officials at the US Bureau of Labor Statistics reported that monthly inflation slowed to 0.3 per cent in September compared to 0.4 per cent in the previous month. The crucial core inflation measure, which discounts energy and food, also dropped to 3 per cent from 3.1 per cent.

Olu Sonola, head of economic research at Fitch Ratings, stated that the Federal Reserve is likely to proceed with its second rate cut in two months, noting that inflation remaining around 3 per cent will not deter policy adjustments. The emphasis, he suggested, is rapidly shifting to a weakening labour market, with upcoming policy decisions potentially viewed as precautionary in nature. There is hope that clarity around jobs will emerge once the shutdown ends.

Prices for goods have seen upward momentum largely due to the highest tariffs imposed by the US in a century. Despite this, much of the import cost has thus far been absorbed by businesses, with stockpiling earlier in the year helping mute the immediate impact on headline inflation. The administration maintains that these tariffs are likely to cause a one-off price rise rather than drive sustained inflation.

Market analysts note that tariffs have already contributed an estimated 0.4 percentage points to headline inflation over the last year, with rising costs now evident across categories such as clothing, furniture, and personal goods. The Federal Reserve implemented its first rate cut in a year this September, and further reductions are anticipated both this month and in December.

Jerome Powell, Chairman of the Federal Reserve, has warned of growing risks to employment and a softening labour market. In response, financial markets have seen US Treasury yields dip and the dollar weaken as traders anticipate additional cuts to borrowing costs.