U.S. Inflation Eases in September, Feeding Speculation of Imminent Fed Rate Cuts

A lower-than-forecast rise in U.S. consumer prices for September improved market sentiment and intensified bets that the Federal Reserve will begin easing monetary policy as early as this week. The consumer price index (CPI) advanced 0.3% for the month and 3% year over year, both readings 0.1 percentage point below the consensus in a Dow Jones survey of economists. The data, released Friday, signaled that inflation pressures, while still present, are losing momentum compared with earlier in the year.

The cooler CPI figure prompted traders to price in an almost certain rate cut when the Federal Open Market Committee gathers later this week. Expectations also firmed for a second reduction at the Fed’s December meeting, according to CME Group’s FedWatch tool. Market optimism was visible across major equity benchmarks: the Dow Jones Industrial Average closed above 47,000 for the first time, while the S&P 500 and Nasdaq Composite joined the blue-chip index in posting gains of roughly 2% each for the week, their second consecutive weekly advance.

Investors’ risk appetite has been supported not only by moderating inflation but also by a stronger-than-expected early wave of corporate earnings. Data provider LSEG calculated that 87% of reporting companies have surpassed Wall Street forecasts, well above the historical beat rate of about 67%. With five members of the so-called “Magnificent Seven” technology group—every firm except Tesla and Nvidia—scheduled to release quarterly results this week, analysts will be watching whether upbeat guidance from Big Tech can put fresh record highs within reach.

Even as inflation surprised on the downside, the annual CPI rate ticked up from 2.9% in August to 3% in September, underscoring warnings from economists that price pressures may re-accelerate if new trade barriers translate into higher input costs. On Saturday, President Donald Trump imposed an additional 10% tariff on Canadian imports, lifting general duties on goods from the neighboring country to 45%. The move came in response to a Canadian advertisement that criticized U.S. trade policy during the first two games of the World Series. Ontario officials said they would discontinue the ad after Game 2.

Tariffs remain a key risk to the inflation outlook. “Inflation might not be slowing but it’s not surprising to the upside anymore,” noted David Russell, global head of market strategy at TradeStation. Nonetheless, analysts cautioned that the inflation report alone does not provide a complete view of economic conditions. A partial U.S. government shutdown has delayed several other indicators, including the monthly employment report, leaving policymakers and investors without a full assessment of labor-market strength and consumer spending.

International trade diplomacy offered a tentative counterbalance to tariff concerns. At the Association of Southeast Asian Nations Summit on Sunday, senior U.S. and Chinese officials described talks as having produced “a very successful framework” for a meeting between President Trump and Chinese President Xi Jinping. Treasury Secretary Scott Bessent said Trump also announced trade agreements with four Southeast Asian nations, though details were not immediately disclosed.

Imagem: Internet

The prospective Trump-Xi encounter is scheduled for Oct. 30 on the sidelines of the Asia-Pacific Economic Cooperation Summit, according to the White House. It would be the leaders’ first face-to-face discussion since Trump began his second term in January. Their meeting carries added significance because a temporary trade truce between the world’s two largest economies expires on Nov. 10 unless an extension is negotiated.

Against this backdrop, the week ahead is set to be one of the busiest of the quarter. In addition to the Fed decision and the slew of technology earnings, investors will track any developments in U.S.-Canada tariff talks and the progression of U.S.-China negotiations. Stronger diplomatic engagement could help temper fears that new trade friction will reverse the recent moderation in price growth identified by the Bureau of Labor Statistics in its latest CPI release.

For now, financial markets appear to be balancing softening inflation data against unresolved trade disputes and incomplete domestic economic information. Whether that equilibrium holds will depend largely on this week’s policy signals from the Fed, the earnings reports from the largest technology companies, and the trajectory of tariff negotiations in North America and Asia.

Crédito da imagem: Frederic J. Brown | AFP | Getty Images