September Inflation Hotter Than Expected, Jobless Claims Spike The Most In Over A Year, Clouding Fed's Interest Rate Outlook

The U.S. inflation rate extended its decline in September for the sixth consecutive month, though the pace was slower than economists had anticipated, and core inflation saw an unexpected rise.

At the same time, the latest jobless claims report revealed the largest weekly increase since July 2023, signaling a setback for the labor market following strong September data and adding complexity to the outlook for interest rates.

Prior to these releases, market expectations pointed to a 76% chance of a 25-basis-point interest rate cut at the Federal Reserve's November meeting, with the remaining odds suggesting the Fed would maintain the federal funds rate at 4.75%-5%, according to CME FedWatch.

September CPI Inflation Report: Key Highlights

  • Headline CPI inflation fell from 2.5% in August to 2.4% in September 2024 on a year-over-year basis, missing a consensus forecast of 2.3% as tracked by TradingEconomics.
  • On a monthly basis, inflation inched up by 0.2% in September, matching August's print but exceeding estimates of 0.1%.
  • Core inflation, which excludes volatile energy and food items, unexpectedly rose to 3.3% year-over-year in September, surpassing forecasts of 3.2%.
  • On a monthly basis, core inflation rose by 0.3%, in line with the previous 0.3% but above estimates of 0.2%.
  • Items that rose in September include shelter, motor vehicle insurance, medical care, apparel and airline fares.
  • Recreation and communication were among those that fell over the month.
  • The shelter index rose by 0.2% in September, while the food index climbed 0.4%. Combined, these two categories accounted for over 75% of the overall monthly CPI increase.
  • Weekly jobless claims rose by 254,000, up from the previous 225,000 and above the expected 230,000.
  • Continuing jobless claims soared to 1.861 million, up from the revised 1.819 million and above expectations of 1.83 million.
  • The four-week average of weekly jobless claims, which helps smooth out week-to-week fluctuations, increased from 224,250 to 231,000.
Market Reactions

In the immediate aftermath of the release, traders appeared to prioritize the unexpected rise in jobless claims over the hotter-than-expected CPI data, pushing market-implied odds of a November rate cut to 85%, according to CME Group FedWatch.

The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE: UUP), erased session gains, as Treasury yields cooled.

Futures on major U.S. indices traded slightly lower during Thursday's premarket trading with contracts on the S&P 500 slightly down by 0.2%. The Dow Jones mimicked the broader market move, while futures on the tech-heavy Nasdaq 100 slipped 0.4%.

Among major asset classes, gold gained 0.7%, on track to snap a seven-day losing streak. Bitcoin was also up by 0.7%.

On Wednesday, the S&P 500, as tracked by the SPDR S&P 500 ETF Trust (NYSE: SPY), marked fresh record highs, while the Dow, tracked by the SPDR Dow Jones Industrial Average ETF (NYSE: DIA), hit a record close.