Delayed Inflation Report Looms: Will It Shake Fed's Next Move?

After a nine-day delay caused by the ongoing government shutdown, September's Consumer Price Index report will finally land Friday morning, and economists say its impact on the Federal Reserve’s interest-rate path – and thus on markets –could be bigger than usual.

The data, which arrives without crucial context from other key economic releases like jobs, retail sales and wholesale inflation, is now the first official data point in over two weeks.

As such, it could carry extra weight in shaping expectations for whether the Fed cuts rates in its Oct. 30 meeting — and how aggressively it continues easing into year-end.

What Are Economists Expecting?

The consensus view is that inflation in September will edge higher again.

According to the median economist consensus tracked by TradingEconomics, the annual headline inflation is expected to rise to 3.1%, up from 2.9% in August.

The month-over-month inflation rate is expected to be 0.4%, while core CPI — which strips out food and energy — is forecast to rise 0.3%. The annual core inflation is predicted to remain steady at 3.1% year-over-year.

Bank of America economist Stephen Juneau said they forecast both headline and core inflation to rise 0.3% in the month, adding, "If our forecast is correct, we do not think the report will be a game changer for the Fed."

He still expects a 25-basis-point rate cut next week.

Market participants are now pricing in a near-certainty of a 25-basis-point rate cut at next week's Fed meeting, with strong odds (90%) of another cut in December.

Used Cars Flat, Tariffs May Add Some Pressure

According to analyst Ayesha Tariq, much of the expected inflationary strength is likely to come from energy and food, with gasoline prices estimated to have risen 1.5% in the month. But it’s the lingering effects of tariffs — particularly on goods like communication equipment, furnishings and recreation — that are keeping pressure on prices.

Used car prices are expected to stay flat after several months of drag, while airfares could fall as much as 1.5%. On the housing front, rent inflation continues to decelerate, according to both Bureau of Labor Statistics data and private sector indices.

Still, core services — especially those unrelated to housing — are proving sticky, with analysts estimating a 0.3% increase for September. That would keep the year-over-year pace near 3.5%, well above the Fed's 2% target.

"Even if the Fed does cut rates next week, I think the messaging will be hawkish and there will be some harsh commentary from Fed Powell on the lack of data due to the Government Shutdown. It's his turn to poke the Administration back for all the jabs he's endured in the last few months," Tariq stated.

What Are Investors Expecting?

According to the latest 22V Research investor survey, there is a growing belief that inflation is on a "Fed-friendly glide path."

A majority of respondents — 61% — said they believe core inflation is cooling in line with the Fed's goals, while just 27% think financial conditions need to tighten further, down sharply from prior months.

Notably, for the first time since July, the dominant expectation is for a risk-on market reaction to the CPI report. About 45% of investors anticipate markets to rally on the data, while only 26% expect a risk-off move.

Interestingly, nearly half the investors surveyed believe that others will see the CPI's market impact as negligible — a signal that sentiment may be turning more dovish beneath the surface.

The survey also captured a meaningful drop in recession expectations, with only 12% of investors now predicting a downturn.

Wall Street Eyes New Record Highs

A softer-than-feared inflation print on Friday could be the final catalyst that propels U.S. equities to fresh all-time highs, as investor optimism builds around a dovish turn from the Fed.

The S&P 500 – as tracked by the Vanguard S&P 500 ETF (NYSE:VOO) – was trading at 6,750 points during Thursday's afternoon session, just 15 points below its Oct. 9 record of 6,765.

The Nasdaq 100 – tracked by the Invesco QQQ Trust (NASDAQ:QQQ) – hovered around 25,120, only 75 points shy of its Oct. 10 high of 25,195.

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Image created using artificial intelligence via Midjourney.