Immediately following the release of the data, markets were pricing in a nearly 100% chance the Federal Reserve keeps rates unchanged in December, according to data from the CME Group.
“October CPI was soft on the services side, and a November print like this would not meet the bar we previously set for an additional hike in December,” wrote Ellen Zentner, chief economist at Morgan Stanley. “We think soft inflation and still tight financial conditions will keep the Fed on hold.”
Still, that doesn’t mean the central bank can declare a win over inflation just yet.
Outside of shelter, which increased just 0.3% month-over-month in October, Oxford Economics lead US economist Michael Pearce warned, “There are signs that services inflation will prove sticky, reflecting tight labor market conditions, with the prospect of a return to the 2% target still some way off.”
“Overall the October CPI report gives Fed officials more confidence that inflation is on a firm downward trajectory, which should stay their hand on any additional rate hikes,” Pearce continued.
“However, the disinflation process still has some way to go, and the path to weaker services inflation depends on a continued cooling in labor market conditions, so it will still be a long time before the Fed is able to think about lowering interest rates.”