The latest inflation report came in a little warmer than expected, sending stock prices down. But there are some encouraging signs within it. The consumer price index rose 0.2% in September last month and 2.4% from a year ago. Economists polled by Dow Jones had predicted a 0.1% monthly gain and a 2.3% year-over-year increase. Core CPI, which excludes food and energy, was also higher than expected. Some investors are concerned that the report means the Federal Reserve may not be able to cut rates further. But the odds of a quarterly Fed rate cut in November actually rose after the report came out. According to CME Group’s FedWatch tool, the fed funds market showed a 94% chance of a quarterly rate cut next month. That’s up from about 75%. The odds of the Fed holding rates at current levels dropped to around 5% from 24%. “CPI Inflation has been heating up a bit, as commodity prices (outside) energy are rising more than expected. The good news is that residential inflation will slow down and that will reduce inflation. The big picture is that inflation continues to decline, although there have been bumps along the way, ” said Carson Group global strategist Sonu Varghese. Whitney Watson of Goldman Sachs Asset Management also noted that the labor market “remains in the driving seat for the Fed and we see next month’s earnings release as the most important data point in determining the pace and degree of Fed easing.” Investors received fresh labor market data on Thursday, with initial jobless claims jumping by 33,000 to 258,000. That’s the highest level of claims since August 2023 and should signal to the Fed that it needs to stay on course with rate cuts. Ian Lyngen of BMO Capital Markets said, “On the net, this morning’s data reinforces our expectations for a 25 bp cut in November.” Elsewhere on Wall Street this morning, JPMorgan downgraded Honeywell to neutral from overweight. “We like the company’s defensive growth and expanded visibility coupled with long-cycle backlogs and a renewed focus on growth under the new CEO, and we applaud the action here, with a positive outlook for ’25,” analyst Stephen Tusa. he wrote. “However, our concern is that the renewed focus on organic growth, which we expect to pay off in some way by 2025, may not be as low as expected, with trade-offs balanced,” he added.
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