Ahead of the Federal Reserve’s two-day meeting next week, data-starved policymakers were served softer-than-forecast inflation figures from the U.S. Bureau of Labor Statistics (BLS) Friday morning, revealing consumer prices rose at an annual rate of 3% in September, slightly below consensus estimates of 3.1%.
Like many federal offices, the BLS is temporarily closed until lawmakers vote to end the government shutdown that commenced on Oct. 1. However, the White House Office of Management and Budget recalled some BLS workers two weeks ago to compile the bureau’s consumer price index (CPI) report for September, originally scheduled for release on Oct. 15, ahead of statutory Social Security deadlines.
The widely cited measure of inflation showed core CPI, which excludes more volatile food and energy prices, rose 0.2% in September after gaining 0.3% in July and August. On a 12-month basis, core CPI rose 3%, slightly lower than the 3.1% annual increase in July and August.
Because the BLS collects the price data used to calculate monthly CPI throughout the month, all September data collection would have been completed by Sept. 30, just before the shutdown began. That also means whatever economic impact the government shutdown may have on consumer prices is not captured in the September CPI figures released Friday.
Overall CPI rose 0.3% on a seasonally adjusted monthly basis, down from a 0.4% rise in August but higher than July’s 0.2% increase. Overall CPI was 3% higher on an annual basis in September, slightly higher than the 2.9% rise in August and 2.7% increase in July.
“Indexes that increased over the month include shelter, airline fares, recreation, household furnishings and operations, and apparel,” the report read. Indexes tracking car insurance, used car and truck prices, and communication ratcheted lower.
Consecutive months of weak jobs data through the late spring and summer prompted the Federal Reserve to lower the overnight lending rate for banks by 0.25% to a target range of 4% to 4.25% at its mid-September policy meeting. All eyes now turn to next week.
“Inflation edged higher in September, just as the Federal Reserve prepares to lower interest rates again next week in an effort to support a cooling labor market,” noted Sam Williamson, senior economist at First American.
He added that “officials remain divided on how aggressively to ease, making a December cut far from certain and dependent on incoming data.”
A September jobs report — the Employment Situation Summary scheduled for release by the BLS on Oct. 3 but subsequently delayed — became the first BLS report to be delayed by the government shutdown.
However, a handful of private firms have attempted to plug the data drain on job creation after that September jobs report was scuttled. Those firms generally conclude that demand for workers remained soft last month, supporting calls for an additional rate cut at the Fed’s upcoming meeting.
Economists estimate the missed BLS report would have shown just 54,000 jobs added in September.
Minutes from the Fed’s September meeting revealed genuine divisions among central bankers regarding the appropriate pace of additional easing — a decision highly dependent on monthly shifts in the labor market, inflation and overall economic data.
“Some participants noted that, by several measures, financial conditions suggested that monetary policy may not be particularly restrictive,” the minutes said. “Most judged that it likely would be appropriate to ease policy further over the remainder of this year.”
Not quite flying blind, policymakers nevertheless take formation next week on clipped wings, lifted by a timely inflation print, but missing weekly jobless claims, retail sales reports and other key economic indicators.
“The labor market has been cooling, and without additional data indicating the contrary, there is little reason for the Fed to pull back on the widely anticipated rate cut,” said Lisa Sturtevant, chief economist of the multiple-listing service Bright MLS, in an email to Scotsman Guide.
As of Friday morning, investor odds of an additional 25-basis-point rate cut at next week’s meeting were 96.7%, according to CME FedWatch, which tracks fed funds futures prices.
