Cooler consumer inflation data opens window for Fed to lower rates in October

Trend watch

The embargo on government-sourced data dragged into its fourth week, though the Department of Labor made an exception. It released the Consumer Price Index for September allowing the Social Security Administration to calculate the annual cost-of-living adjustment (COLA) for the 2026 benefits.

As a reminder, on slides 3, 4, and 5, we’ve marked the impacted indicators in red and are changing the trend to “Ø” once a data release has been missed since a stale trend shouldn’t be relied upon.

Note: Slides are available to clients in the full report. 

Our take

The September Consumer Price Index (CPI) cooled compared to August and was below consensus expectations, which anticipated it to remain elevated. The biggest drags in September were by food and vehicle prices, along with auto insurance, which more than offset increases by energy and apparel prices rose.

Coupled with scant evidence of other price increases, the cooler September CPI print likely gives the Federal Reserve (Fed) the proverbial green light to lower its target by another quarter point (0.25%) when it meets next week. Moreover, the state-level weekly jobless claims figures, which continue to be released by their respective labor agencies, appear to support the notion that the labor side of the Fed’s dual mandate remains stable.

Other CPI details, however, show a continuation of the upward trend in import-dominated product categories. For instance, apparel jumped 0.7%, the largest monthly jump in a year, with some sub-categories such as watches up 3.2% in September. Meanwhile, fresh tomato prices remain high following a new 17% tariff on imports from Mexico that went into effect on July 14^th. But signs of stabilization are emerging as prices cooled in September (slide 9).

Although inflation–tariff dynamics complicate the Fed’s analysis, it likely slows the pace of rate cuts in the near term rather than halt it. 

Bottom line

The U.S. economy remains in a muddle-through environment. The shutdown is delaying most government-sourced economic data. We expect the Fed to continue moving cautiously.