Northwestern Mutual Wealth Management Chief Investment Strategist Brent Schutte and Raymond James Washington Policy Analyst Ed Mills discuss which directions the market will go after midterm elections on ‘The Claman Countdown.’
A high-stakes inflation report due Thursday is expected to show the fight to wrestle stubbornly high consumer prices under control has a long way to go.
The Labor Department is releasing the highly anticipated consumer price index (CPI) report Thursday morning, providing a fresh look at how hot inflation ran in October.
Economists expect the gauge, which measures a basket of goods, including gasoline, health care, groceries and rent, to show that prices rose 0.6% from the previous month — up from the 0.4% reading in September. On an annual basis, inflation is projected to have climbed by 8%.
The report is likely to show underlying momentum in inflation as home and rent prices march higher. Core prices, which exclude the more volatile measurements of food and energy, are expected to climb 0.5% from the previous month and 6.5% from the same time last year.
THE FED’S WAR ON INFLATION COULD COST 1M JOBS
U.S. Federal Reserve Chair Jerome Powell speaks during a news conference on interest rates, the economy and monetary policy actions at the Federal Reserve Building in Washington, D.C. June 15, 2022. (Olivier Douliery/AFP via Getty Images / Getty Images)
While consumers have recently gotten a little relief from inflation in the form of lower gas prices, the latest CPI reports will likely show that food and rent costs have skyrocketed. That is a concerning development because higher housing and food costs most directly and acutely affect household budgets.
“It isn’t just the ongoing pace of increase that is troublesome but the pervasiveness of surging prices across various spending categories that have scarred household budgets,” said Greg McBride, the chief financial analyst at Bankrate.
The report will also have significant implications for the Federal Reserve, which is tightening monetary policy at the fastest rate in decades as it tries to cool consumer demand and reduce out-of-control inflation.
Policymakers in October approved a fourth consecutive 75 basis point rate hike, lifting the federal funds rate to a range of 3.75% to 4% — well into restrictive levels — and indicated that more increases are coming.
Wall Street’s growing expectation is that the Fed will trigger an economic downturn as it raises interest rates at the fastest pace in three decades to catch up with runaway inflation.
“The chances of a soft landing are likely to diminish to the extent that policy needs to be more restrictive or restrictive for longer,” Fed Chairman Jerome Powell said last month. “Nonetheless, we’re committed to getting inflation back down to 2%. We think a failure to restore price stability would mean far greater pain.”
If the October inflation data comes in hotter than expected, it could raise the odds of an even steeper rate hike when the Fed meets in December and a more aggressive central bank in the coming months.
“Despite a half-dozen interest rate hikes by the Federal Reserve, any broad-based, significant and sustained easing of inflation pressures remains elusive,” McBride said. “As a result, Fed Chair Jerome Powell says there is ‘a ways to go’ in hiking interest rates to a level that dampens demand enough to corral inflation.”
A customer shops at a supermarket in Millbrae, Calif., Aug. 10, 2022. (Li Jianguo/Xinhua via Getty Images / Getty Images)
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The Fed is also watching other economic indicators, including job growth and consumer inflation expectations. In a potentially worrisome sign, job growth has been chugging along at a healthy pace, despite the central bank’s efforts to cool the labor market.
“We still have some ways to go,” Chairman Jerome Powell told reporters last week. “And incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected.”
