NAFCU: Cooling Inflation May Hasten Rate Cuts

Inflation fell in October by enough that a NAFCU economist believes it could bring the day closer when the Fed will start cutting rates.

The U.S. Bureau of Labor Statistics reported Tuesday that the Consumer Price Index rose 3.2% in the 12 months ending in October, down from 3.7% through September.

Moreover, there was also progress in the measure most closely watched by the Fed: Core inflation, which excludes the volatile energy and food categories. Core inflation was 4.0% for the 12 months ending October — its smallest 12-month change since September 2021.

NAFCU Economist Noah Yosif said the overall inflation rate was below expectations. Falling prices of gasoline was a major contributor, but other sectors slowed as well.

“Service inflation has been more stubborn and was the driving force behind last month’s upside CPI surprise. But in October service price growth settled back into its pre-September range,” Yosif said.

“With aggregate labor income slowing, there will be more confidence among Federal Reserve officials that price growth is on a sustainable path back to target,” Yosif said. “NAFCU expects these conditions place the Federal Reserve on track to commence rate cuts in the second quarter of 2024, with an outside chance of earlier if unemployment continues to rise.”

CUNA Senior Economist Dawit Kebede said one area of continued rising prices in October was shelter, but the growth returned to a normal monthly rate of 0.3% after jumping to 0.6% in September.

“The October inflation report is good news for the Federal Reserve determined to bring prices down to its 2% target,” Kebede said. “Annualized core inflation is down to 2.8%; and core inflation less housing — a lagging indicator — is lower than 2%.

“A moderating labor market is also another indication that underlying prices pressures are easing,” he said. “All these indicate that the Federal Reserve may not need further rate hikes to bring prices under control.”