U.S. September CPI Disappoints, Rising a Faster Than Expected 0.2%

As a seasoned crypto investor with over a decade of experience navigating market fluctuations, I can confidently say that the latest inflation numbers from the U.S. have added another layer of complexity to an already tumultuous market landscape. The unexpected surge in both CPI and core CPI has certainly put a damper on the bullish sentiment that was building around potential rate cuts by the Fed.

Surprisingly high inflation rates were reported by the U.S. government’s Consumer Price Index for September, as revealed in their report published on Thursday morning.

In September, the Consumer Price Index (CPI) saw an unexpected increase of 0.2%, surpassing predictions of a 0.1% rise. This is also a higher increase compared to the 0.2% growth recorded in August. On an annual comparison, the CPI registered a rise of 2.4%, contrary to expectations of 2.3% and the previously reported 2.5% in August.

In simple terms, the Core Consumer Price Index (CPI), which disregards fluctuating food and energy prices, increased by 0.3% in September as compared to predictions of a 0.2% rise, and also surpassed the 0.3% increase seen in August. Furthermore, the year-on-year core CPI showed an uptick of 3.3%, exceeding the anticipated 3.2% and the 3.2% recorded in August.

In September, the U.S. Federal Reserve took several people by surprise when it initiated a series of interest rate reductions with a more substantial 0.5% reduction rather than the anticipated 0.25% adjustment. This decision ignited a significant surge in cryptocurrency prices, as investors considered not only this rate cut but also speculations about an equally significant move at the Fed’s following policy meeting scheduled for early November.

Due to hawkish remarks from Federal Reserve Chair Jay Powell and a stronger-than-anticipated employment report, expectations for a potential interest rate cut have drastically changed over the past ten days. This shift could potentially be linked to the significant drop in cryptocurrency prices during this period. As per CME FedWatch, which translates pricing data from short-term interest rate markets into probabilities of Federal Reserve actions at each policy meeting, the likelihood of a 0.5 percentage point rate cut in November has vanished completely. In fact, prior to this morning’s inflation report, the financial markets had priced in a 26% chance that the Fed won’t reduce rates at all – a significant increase from zero just a week ago.

Today’s inflation figures may strengthen the belief that the Federal Reserve could postpone any rate reductions in November. However, if the disappointing Consumer Price Index (CPI) is counterbalanced by weak employment data, it could happen. The number of initial jobless claims, which had been almost stagnant at extremely low levels for a long time, suddenly spiked to 258,000 last week from 225,000 before, and exceeded predictions of 230,000. It’s uncertain, though, how much the aftermath of Hurricane Helene could have influenced these figures.