September CPI Could Be The Game-Changer: What The Street Is Watching

Thursday’s September CPI data is shaping up to be a crucial test for markets ahead of the Fed’s late-October meeting. Here’s the setup:

The Numbers Everyone’s Watching

Consensus points to headline inflation cooling from 3.7% to 3.6% YoY, while core CPI (the real tell-all) should drop from 4.3% to 4.1%—the softest reading since September 2021. Month-over-month, both are expected to tick up just 0.3%.

But Goldman Sachs is calling for something spicier: they’re predicting core CPI at just 3.98% YoY (below the 4.1% consensus), suggesting inflation cooling faster than the market thinks.

What Does This Mean For Rates?

The Fed futures market has already made its bet: 92% probability of no rate move in November, 72% for December. Soft CPI data could cement rate cuts as the 2024 story.

The Wild Card

September’s PPI surprised to the upside recently, so traders are bracing for potential volatility. Last month’s hotter-than-expected CPI didn’t kill the rally—stocks stayed green, actually—but this time could be different if the narrative shifts.

TL;DR: Watch core CPI closely. Sub-4% could trigger a “rates are done” trade. Hot data? Risk-off mode activated.