Market Overview

Recent September inflation data in the United States excited markets as consumer prices are slowing down unwillingly. The Consumer Price Index (CPI) came out at 8.2% year-on-year beating the forecasted 8.1% and slightly below the previous 8.3% in August. Investors were disappointed that inflation isn’t slowing down enough.

More importantly the Core CPI rose to 6.6% year-on-year beating the estimated 6.5% and the previous 6.3%. The core CPI excludes food and energy prices that were suggested to be the main reason for price spikes. So, this is obviously not the reason for steady inflation growth but a natural phenomenon of the U.S. economy.

This seems to be a sad finding as the Federal Reserve’s (Fed) primary target is to bring inflation under control and it has put a lot of efforts into doing so. But the data demonstrates the failure of the Fed. With this in mind further tightening of monetary policy in the United States could be expected. The Fed WatchTool indicates that investors are now betting that interest rates may be hiked to 4% from the current 3.25% with a probability of 96.5%. Just one day before the data was released on October 12 only 80% of investors suggested this rate hike could be a reality while 20% suggested that rates could be raised to 3.75%. Now it seems investors no longer  consider such “modest” rate increases. Moreover, a small hawkish group that believe interest rates could be hiked to 4.25% during the Fed’s next meeting on November 2 has emerged.

Investors do not only consider inflation data but also strong labour market when it comes to possible further rate hikes. Strong September Non-Farm Payrolls eased fears about a recession and justifies the Fed’s hawkish interest rate moves. Such findings led to a continuous rally of the U.S. Dollar. The U.S. Dollar index tested the 114 points landmark but quickly rolled back to 113 points. However, the upside trend for the Dollar is intact with multiyear highs at 114-114.8 points that were firstly reached at the end of September 2022.

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Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.