Live Data Coverage: October US Inflation Report

US CPI Preview:

• Consensus forecasts are looking for headline US inflation to come in at +8% y/y and the core reading to come in at +6.3% y/y.
• At present time, rates markets are favoring a 50-bps rate hike at the next Federal Reserve rate decision in December.
• We’ll discuss the impact of theOctober US inflation report on the US Dollar, gold prices, and US stocks starting at 8:15 EST/12:15 GMT on Thursday, November 10, 2022. You can join live by watching the stream at the top of this note.

Has US Inflation Turned the Corner?

The upcoming October US inflation report (consumer price index) might offer a small glimmer of hope that peak inflation remains in the rearview mirror. According to a Bloomberg News survey, headline US inflation figures are due in at +0.6% m/m from +0.5% m/m and +8% y/y from +8.2% y/y, while core readings are expected at +0.5% m/m from +0.6% m/m and +6.6% y/y from +6.3% y/y. Another round of stubborn readings could reinvigorated Fed rate hike odds which fell in the wake of the October US jobs report, which while good news for the US Dollar, would likely not be the case for US stocks and gold prices.

Stubborn readings could translate into sustained elevation in Fed rate hike odds, which while good news for the US Dollar, will likely not be the case for US stocks and gold prices.

How Will the Fed Respond?

Just last week, the Federal Reserve delivered its fourth consecutive 75-bps rate hike. The policy statement hinted that future rate hikes will take into account “cumulative tightening,” which markets interpreted as the Fed looking for optionality at upcoming meetings. However, the implication of optionality does not automatically mean that the Federal Reserve’s next move will be of a smaller increment. That being said, bets for December’s outcome currently sit around 50/50, slightly skewed in favor of a 50-bps rate hike.

Thursday’s print will likely see heightened volatility surrounding US Treasury yields and fed funds futures (FFF). Extreme volatility across rates markets, as seen in the MOVE index, has kept investors on edge all year. A reading above consensus on Thursday is likely to fuel bets for an additional 75-bps in December, which could erase some of the recent gains in risk assets.

While the Fed has opened the door to having “optionality” at future policy meetings, the ability to have options may be off the table should inflation remain persistently stubborn. While expectations for the Fed’s terminal rate have pushed well beyond 5%, it would appear that risks remain skewed toward further increases. The Fed is yet to see any material weakness in labor market or inflation metrics, meaning they may need to remain in restrictive territory for longer than expected. This has been echoed in recent Fedspeak, as Fed officials have hinted themselves that upward revisions to terminal rate expectations are coming in the December SEP.

Cleveland Fed Inflation Dashboard (November 9, 2022) (Chart 1)

According to the Cleveland Fed inflation nowcasting tool, the US economy experienced headline inflation of +0.76% m/m and +8.09% y/y in October, with core inflation at +0.54% m/m and +6.58% y/y. These readings would prove stubborn once again, paving the path for continued aggressive by the Fed in the next few months.

We’ll discuss these questions and more in context of the October US inflation report starting at 8:15 EST/12:15 GMT on Thursday, November 10, 2022. You can join live by watching the stream at the top of this note.

--- Written by Christopher Vecchio, CFA, Senior Strategist and Brendan Fagan, Research Contributor