Investors were taken aback by the recent inflation report, which showed a slight increase in consumer prices. Stock prices dipped in response to the news, but there are some positive aspects worth noting. The consumer price index rose by 0.2% in September compared to the previous month and by 2.4% from the same period last year. These figures exceeded the expectations of economists, who had forecasted a 0.1% gain month-over-month and a 2.3% increase year-over-year. Additionally, the core CPI, which excludes food and energy prices, also saw a higher-than-expected increase.
Despite concerns that the Federal Reserve may not be able to further cut interest rates due to the inflation report, the odds of a quarter-point rate cut in November actually rose. According to the CME Group’s FedWatch Tool, the fed funds futures market now indicates a 94% probability of a rate cut next month, up from about 75%. This shift in expectations suggests that the Fed may still have room to maneuver in supporting the economy.
Moreover, experts like Sonu Varghese from Carson Group and Whitney Watson from Goldman Sachs Asset Management believe that inflation is gradually trending downwards. Varghese noted that while commodity prices outside of energy are rising, shelter inflation is decreasing, which should contribute to lower overall inflation. Watson emphasized the importance of upcoming labor market data in guiding the Fed’s decisions on interest rates.
In addition to the inflation report, investors also reacted to news of JPMorgan downgrading Honeywell to neutral from overweight. The company’s focus on organic growth under a new CEO is seen as a positive, but there are concerns about how this growth will translate to the bottom line in the near future.
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