Markets continue to price in high odds that the Federal Reserve will cut interest rates again next week. The question for Wall Street: Will the delayed consumer inflation report, scheduled for Friday (Oct. 24), play along?

The consensus point forecast expects the consumer price index (CPI) to edge higher, rising 3.1% in September on a year-over-year basis for the headline reading, according to Econoday.com.
 

If correct, the report may give the Fed pause – a 3.1% annual pace in headline CPI will mark the highest inflation rate since May 2024, and strengthen the view that pricing pressure is picking up and has yet to peak in the new upcycle that started earlier this year.
 

Core CPI, which strips out volatile food and energy prices and is therefore a more reliable measure of the trend, is expected to hold steady at a 3.1% annual increase via seasonally adjusted data. That would be relatively good news, providing some cover for the Fed, although a 3.1% increase is still the fastest pace since February.

Economists are still debating if tariffs will lift inflation further and the forecasts for Friday’s CPI report look set to keep the discussion going. A reasonable way to think about tariffs and inflation, unless and until incoming data suggest otherwise, is the formulation outlined by Yardeni Research President Ed Yardeni: “Trump’s tariffs didn’t boost inflation but did keep it from falling to the Fed’s target of 2.0% by now.”

Meanwhile, market sentiment remains confident that the CPI report won’t derail another rate cut. The current Fed funds futures implied probability for a new round of policy easing at the Oct. 29 FOMC meeting is 99%.

A new round of easing, however, will be challenging to justify if forecasters are right and headline CPI rises in annual terms for a fifth straight month to a 16-month high.

“I think it’s very difficult to read the economy right now,” former Treasury Secretary Summers said. “I am, if anything, a bit more worried about inflation than I am about recession, given the strength of most categories of consumption spending, most categories of business investment and the relatively expansionary posture of monetary and fiscal policy and some signs of rising inflation expectations. I think the greater risks are on that side.”

The uncertainty is whether the Fed agrees, and so markets will be looking to the upcoming CPI data and next week’s policy decision for clarity.

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