Fed Getting Closer to Cutting Rates? Inflation Weakens, but Risks Remain

Economic

Summary:

U.S. inflation eased to 3% in September, below forecasts, boosting expectations of Fed rate cuts in October and December. Stocks rallied, yields fell, and the dollar weakened, though tariff and sentiment risks persist.

The September consumer inflation (CPI) report in the United States has provided markets with long-awaited signals of a potential shift in the Federal Reserve’s monetary policy. Both the headline CPI and its core measure came in below market expectations, increasing the likelihood of a rate cut at the upcoming Fed meeting — and possibly another one in December.

Inflation Weakens – CPI and Core CPI Below Forecasts

According to the published data, headline CPI rose by +0.3% month-on-month, compared to expectations of +0.4%, while core inflation — which excludes food and energy prices — increased by just 0.2%, the smallest gain in three months. On an annual basis, both indicators held steady at 3.0%, also below forecasts (3.1%).

Fed Getting Closer to Cutting Rates? Inflation Weakens, but Risks Remain_1

United States CPI

A particularly notable development was the slowdown in housing costs. The owners’ equivalent rent, a key component of services inflation, rose by only 0.1%, marking its slowest monthly increase since early 2021. This reading may be seen by the Fed as confirmation that previous rate hikes are effectively curbing price pressures in the economy.

Room for Rate Cuts – Market Prices in Easing

In light of these figures, market expectations for monetary policy have shifted significantly. Investors are now pricing in an almost certain 25-basis-point rate cut at the Fed’s next meeting. Moreover, the probability of a second cut in December has increased — particularly since a potential federal government shutdown could prevent the release of additional inflation data before year-end, making the September report even more crucial.

Fed Getting Closer to Cutting Rates? Inflation Weakens, but Risks Remain_2

Probability of interest rate cuts based on 30 Day Federal Funds Futures

Although inflation is cooling, risks to the price outlook remain. New tariffs announced by President Donald Trump — including on kitchen and upholstered furniture — could raise the prices of imported goods in the coming months. Companies such as Procter & Gamble and O’Reilly Automotive admit that while they are currently absorbing higher costs through margins, they will increasingly be forced to pass them on to consumers.

Market Reaction: Stock Rally, Lower Yields, Weaker Dollar

Lower inflation and rising expectations of a looser monetary policy had an immediate impact on financial markets. Major U.S. stock indices recorded strong gains:

Dow Jones up 1.17%,

Nasdaq 100 up 1.14%,

S&P 500 up 0.89%.

Fed Getting Closer to Cutting Rates? Inflation Weakens, but Risks Remain_3

Daily chart of SP500, Dow Jones, NASDAQ100 and US10 yields

Yields on 10-year Treasury bonds fell below the 4% level, signaling a shift in investor expectations about the future path of interest rates. Meanwhile, the U.S. dollar weakened, reflected in the EUR/USD exchange rate, which rebounded from 1.1580, which it reached on Wednesday. Whether these trends continue will depend on future Fed communications and potential confirmation of a rate cut decision.

Consumers Not Sharing the Optimism – Sentiment Weakens

It is worth noting, however, that despite market optimism, U.S. consumer sentiment has deteriorated. The University of Michigan index fell in October to 53.6 points, its lowest level in five months. Consumers continue to cite inflation and high living costs as their main sources of concern. Declining confidence could eventually weigh on consumption dynamics and, consequently, on the pace of economic growth.

Conclusions: Fed at a Crossroads – Markets Benefit, but Risks Persist

The September inflation data have clearly increased the likelihood of monetary easing by the Fed, already boosting equity indices and weakening the dollar against the euro. However, the Federal Reserve still faces the difficult task of balancing inflation control with support for the real economy.

New risks loom on the horizon — from protectionist tariffs and consumer uncertainty to the potential lack of further macroeconomic data due to government disruptions. In the coming weeks, not only the data itself but also the Fed’s communication and market reactions to every signal will be crucial for future movements on both Wall Street and the foreign exchange market.

Source: marketpulse

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Kevin Du

Economic

U.S. Trade Representative Jamieson Greer announced moments ago that the U.S. has initiated a Section 301 investigation into China's implementation of the Phase One trade deal, a deal that has been out of public focus since President Trump's first term. This development comes less than one week before Trump and Chinese President Xi Jinping are scheduled to meet on the sidelines of the Asia-Pacific Economic Cooperation summit to ease trade tensions. The flurry of recent trade-related headlines, from rare earths to soybeans to jet engines, suggests that both economic superpowers are attempting to build leverage ahead of trade talks.

"President Trump made history in his first term when he stood up for the American worker and brokered the Phase One Agreement, establishing a more fair and reciprocal trade relationship with China," Ambassador Greer stated.

Greer wrote in a statement, adding, "The initiation of this investigation underscores the Trump Administration's resolve to hold China to its Phase One Agreement commitments, protect American farmers, ranchers, workers, and innovators, and establish a more reciprocal trade relationship with China for the benefit of the American people."

USTR provided additional context on the Phase One trade deal reached in December 2019, which required China to implement structural reforms in areas such as intellectual property, technology transfer, agriculture, and financial services, and to significantly increase purchases of U.S. goods and services. Beijing's shift toward sourcing agricultural products from the U.S. to Brazil has inflicted pain across America's Midwest farm belt, and is likely one key reason this probe was opened.

Five years after the agreement was signed, China has not fulfilled its commitments, particularly regarding non-tariff barriers, market access, and purchase targets. Ahead of next week's Trump-Xi meeting at APEC, Greer will investigate whether China's failure to comply with the Phase One deal violates U.S. trade rights under Section 301.

Despite the probe, President Trump said on Thursday, "I think we're going to come out very well and everyone's going to be very happy."

The Trump-Xi meeting also comes just before a trade truce between Washington and Beijing is set to expire on November 10. Trump has threatened to impose an additional 100% tariff on Chinese products on November 1 if Beijing does not ease shipments of rare earth minerals to the U.S. Trump said this week that upcoming talks with Xi will produce a "good deal" on "everything" related to trade.

Market attention now turns to any weekend statements from both sides. So far, the market reaction has been muted across equities, bonds, and FX, as a cooler CPI print in the U.S. has pushed main equity indexes to around noontime.

Source: Zero Hedge

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Adam

Economic

A fresh reading Friday showing that inflation cooled slightly in September is likely to keep the Federal Reserve on course for another quarter-percentage-point interest rate cut next week amid continued concerns about the job market.

The Consumer Price Index (CPI) clocked in at 3% for the month of September, a tenth of a percent lower than expected but inching up from the 2.9% rate in August. On a "core" basis, which excludes volatile food and energy prices and is the preferred Fed measure, inflation also rose by 3% in September, cooling from 3.1% in the prior month. Month over month, core inflation rose 0.2% after rising 0.3% in the two preceding months.

"Goods prices are firming again amid tariff pressures, but softer shelter and services readings show progress where it matters most," BlackRock chief investment and portfolio strategist Gargi Pal Chaudhuri said. "The disinflation trend is intact, keeping the Fed on course for a rate cut next week."

The long-awaited softening in shelter prices is finally becoming more apparent in the CPI, with rents experiencing the smallest monthly increase since March 2021.

CPI, initially slated for release on Oct. 15, was released with a delay despite the government shutdown because the data is required by law for calculating cost-of-living increases for Social Security payments before Nov. 1.

While Fed officials will use this information in their decision on monetary policy next week, they have not received the September jobs report, retail sales, or the Producer Price Index, complicating their decision.

At 3%, inflation is holding at a full percentage point above the central bank's 2% target. Fed officials have forecast that inflation would end the year at 3.1% before returning to 2.6% next year. Those figures would leave inflation above the Fed's goal of 2%, but many policymakers are now more worried about weakness in the job market than prices. The Fed has a dual mandate to maintain stable prices and maximize employment.

Private-sector jobs data has shown that the job market deteriorated this fall. Payroll company ADP reported that private payroll employment fell by 32,000 jobs in September. The Fed's Beige Book, a compilation of anecdotal evidence across the country, also painted a weaker picture of the job market.

"The cooler-than-expected CPI confirms what we've seen overall from private data during the government shutdown — little indication that inflation is surging or that the labor market is falling off a cliff. For a Fed focused on prudent 'risk management,' that should translate into another rate cut next week, and likely more to follow," Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, said in a statement.

Patrick Harker, former president of the Philadelphia Fed and Rowan Distinguished Professor at the Wharton School of the University of Pennsylvania, sees more friction, however.

“It’s interesting that the markets are taking this news as a positive because the reading was benign,” Harker told Yahoo Finance. “While everybody took this as a good report, I don't. I think that it's a tough spot.”

Harker stressed inflation is still at 3% and that “it's not going to be coming down anytime soon because the tariffs are dripping into the economy that they don't come in all at once.”

He noted that retailers and business-to-business firms have been holding back in some cases on price increases, but that they can't do that forever and will raise prices.

Eyes on employment

Last week, Fed Chair Jerome Powell emphasized that "the downside risks to employment appear to have risen" and shifted policymakers' assessment of the balance of risks, even as the government shutdown has delayed the release of the all-important jobs report.

That appeared to imply that another rate cut is possible at the Fed's next meeting next week, even though Powell did say that monetary policy will be set meeting by meeting.

Wilmington Trust chief economist Luke Tilley is more concerned that tariffs are weighing on growth and the job market than pushing up inflation. Looking at job data from the BLS from May through August, since September has been delayed due to the government shutdown, Tilley said total private-sector job growth totaled 157,000 for that four-month period. Healthcare added 249,000 during that time, but all the other private sectors added together, including manufacturing, construction, retail, information, professional business services, and leisure hospitality, were negative 92,000 jobs.

Tilley believes the slowdown in the job market is due more to softening demand for workers than simply lower immigration. He pointed to company and CEO surveys on hiring that say they're hiring enough to maintain headcount levels or reducing headcount through attrition, which is attributed to uncertainty about demand, weak demand, or softer sales. And he doesn’t expect job growth to reaccelerate.

"The job market is a lagging indicator, and there's a risk that's going to keep going down and that we've already turned in the economy," Tilley said. "It's not going to show up in GDP data yet, but if labor is a lagging indicator, then there's that weakness there."

The central bank cut rates in September for the first time in 2025 and predicted two more cuts for the year, which would mean reductions at FOMC meetings next week and in early December.

The path of inflation remains uncertain as President Trump's tariffs work their way through the US economy.

Powell said last week that tariffs will likely result in a one-time price increase, but that may not be all at once and may be spread across several quarters, thus showing up as somewhat higher inflation during that period.

He stressed that the Fed will look for assurance that this one-time increase in prices does not become an ongoing inflation problem, which is important for inflation expectations.

Fed governor Chris Waller said last Thursday he is in favor of trimming interest rates by another quarter percentage point at the end of this month, but after that, he wants to move cautiously.

Other members of the Fed, from Chicago Fed president Austan Goolsbee to Kansas City Fed president Jeff Schmid and Cleveland Fed president Beth Hammack, have expressed concern about the risk of inflation becoming more long-lasting.

Markets are pricing in a rate cut at the next meeting and the December meeting as a done deal.

Source: finance.yahoo

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Adam

Commodity

Gold and silver prices near midday Friday have clawed back most of their overnight losses following a tame U.S. CPI report that puts the Federal Reserve firmly on track to lower U.S. interest rates by a quarter-point next week.

This week, the daily price volatility in gold and silver futures markets became so extreme that both bulls and bears could have been forced out of the markets in the same trading session, due to major whipsaw price action. Look for continued higher volatility next week in both precious metals markets, which if is indeed the case would favor the bears. What the high volatility has likely done is drive many speculators out of the gold and silver futures markets because they are scared to trade such volatility. Less participation from the speculative segment of futures markets is generally bearish, as it can be argued that the majority of speculative traders would rather play the long side than the short side.

For those gunslingers still willing to trade the gold and silver markets straight away, the micro and mini gold futures are the way most should do it. Even trading the smaller-size contracts during such volatile market activity can be very risky. The smaller-sized futures contracts allow traders to access the markets with a lower capital commitment. Micro gold futures from the CME Group (MGC) represent 1/10th the size of a standard 100-ounce Comex gold futures contract, meaning each contract is for 10 troy ounces of gold. The smaller size translates to significantly lower margin requirements, making them ideal for new traders or those with smaller trading accounts. With a smaller tick value (10 cents, which equals $1.00, meaning a $1.00 move is $10.00 in value), micro gold futures offer less financial impact from price movements, which makes them a useful tool for testing trading strategies or managing smaller-scale portfolios.

Fundamentally, the gold and silver bulls can argue there are still bullish elements at play. The U.S. government shutdown has entered its fourth week, with no signs of ending, which means there continues to be a dearth of important U.S. economic data. That means keener uncertainty in the marketplace and that’s bullish for the safe-haven metals.

Lower global interest rates are likely in the coming months. After next week’s Fed rate cut, the marketplace still thinks the Fed will make up to two more cuts of one quarter-point. Recent weaker economic data out of China has the Chinese government saying it will ease its monetary policy in the coming weeks/months. Other countries, including Canada, the U.K. and Australia have also lowered interest rates.

However, psychologically, a lot has changed in the past week. Let’s face it, gold and silver bulls and bears were both spooked at one time or another the past week. This favors the bears.

The U.S. stock indexes have also made solid rebounds and today (Friday) hit record highs. The stock market is a competing asset class with safe-haven metals. The stock indexes at record highs suggest better risk appetite in the marketplace, which is bearish for gold and silver.

The U.S. dollar index has been trending higher since mid-September. Generally, a rallying U.S. dollar index is a bearish element for the gold and silver markets.

Let me leave you with this important point, which I warned you about last week: Probably the most important factor that I think will determine where gold and silver prices are headed: Silver above $50.00. Reason: Price history over the past 50 years shows that when silver prices reach $50, or get close to it, which has occurred three times now, the first two times saw silver trade above $50 for only a short period of time. Two weeks from now, if silver prices are above $50 an ounce, then the marketplace can start to believe both gold and silver are entering new, longer-term price ranges that will continue well above what price history of the past 50 years has shown. And if silver stays below $50 in the next week, history will again repeat itself--and that would suggest gold and silver are due for extended downside price corrections and even bear markets farther down the road, to continue the historical cycle of boom and bust seen in all raw commodity markets. Right now, it appears silver prices are going to have a difficult trek to get back above that key $50.00 level.

Source: kitco

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Adam

Economic

Below are the most important global events likely to affect FX and bond markets in the week starting October 27.

All eyes in the coming week will be on the U.S. Federal Reserve, which is widely expected to cut interest rates by another 25 basis points, even as the U.S. government shutdown continues.

In Europe, focus will center on a European Central Bank decision, while in Asia, a highly anticipated meeting between Trump and China's Xi Jinping will be closely watched for signs of de-escalation in trade tensions.

The U.S. president will also meet with Japan's newly elected prime minister, which comes as the Bank of Japan makes its first rate decision since the country's leadership change. A rate decision is also due in Canada.

U.S.

The Federal Reserve announces a rate decision on Wednesday and is widely expected to cut interest rates by 25 basis points, lowering the fed funds rate to 3.75-4.00%, particularly after recent weaker-than-expected inflation data.

Markets fully price a Fed rate cut amid recent signs of weakness in the U.S. labor market, even as concerns remain that tariffs could increase pressure on inflation.

"We expect another 25 basis-point rate cut…as persistent labor-market weakness remains the Fed's top concern," analysts at Allianz Research said in a note.

Investors will focus on the Fed's accompanying comments for signals on how far and how fast rates will fall from here, particularly as the continued U.S. government shutdown is delaying key economic data.

U.S. money markets are fully pricing in a follow-up rate reduction in December, LSEG data show.

The government shutdown is now entering its fourth week. Allianz estimates that this has likely already reduced fourth-quarter annualized GDP growth by 0.45 percentage points.

This will mean official data will continue to be delayed, leaving investors focusing on the Conference Board's consumer confidence data for October on Tuesday.

Scheduled official data include September durable goods orders on Monday; third-quarter GDP data and weekly jobless claims Thursday; and September PCE inflation figures Friday.

The Treasury will auction $69 billion in two-year and $70 billion in five-year notes on Monday, and $44 billion in seven-year notes on Tuesday.

Canada

The Bank of Canada announces its next policy decision on Wednesday, when it's expected to cut interest rates further.

The decision comes amid tensions between the U.S. and Canada after President Trump said he was terminating all trade negotiations with Canada.

"We think that this development slightly increases the chance of another Bank of Canada rate cut," ING analyst Francesco Pesole said in a note.

Money markets price an 82% chance of a 25 basis points rate cut to 2.25%, according to LSEG. ING expects a 25 basis-point rate cut as trade uncertainty and existing U.S. tariffs weigh on Canadian businesses' investment and hiring plans.

The worrisome picture for economic activity and jobs should prevail over September's higher-than-expected inflation data, Pesole said.

Canadian GDP data for August are due on Friday.

Eurozone

The European Central Bank's policy decision on Thursday will be in focus, although no change in interest rates is expected, with the deposit rate set to stay at 2%.

"Central bank officials unanimously signal that they consider the current key interest rate level to be well positioned," DZ Bank analyst Christian Reicherter said in a note. Wait-and-see remains the order of the day, he said.

While inflation rose above 2% in September, "this should not cause European monetary policymakers any lasting concern," the analyst said.

Germany will kick off the usual intense end-of-month data flow with the Ifo business climate index for October on Monday.

The data might add a new layer of investor optimism following significantly better-than-expected flash estimate purchasing managers indices for October.

This data will be followed on Tuesday by Germany's GfK consumer climate survey and Italy's consumer and business confidence surveys. French consumer spending for September and eurozone business and consumer surveys for October are scheduled for Thursday, alongside unemployment figures from Germany for October, Italy and the eurozone for September.

First-estimate GDP data for the third quarter for Spain are due Wednesday, followed by similar releases for France, Germany, Italy and the eurozone on Thursday.

Spain and Germany will release flash estimate consumer-price inflation data for October on Thursday, followed by French, Italian and eurozone CPI releases on Friday.

"We expect [eurozone] inflation to temporarily fall below 2% in early 2026 due to base effects and one-off factors, but since this undershoot is expected to be short-lived and inflation should return to target by mid-2026, the ECB is unlikely to deliver another rate cut even if we see inflation risks tilted to the downside," said Santander CIB's Antonio Villarroya, head of G10 macro and fixed income strategy research.

Belgium will sell 2030- and 2035-dated conventional and 2033-dated green bonds on Monday. Germany sells October 2030-dated Bobl on Tuesday and August 2035-dated Bunds on Wednesday. Italy will also hold two auctions, one on Tuesday and another on Thursday.

U.K.

In a quiet week for U.K. data, focus will center on Wednesday's release of U.K. mortgage lending, mortgage approvals and consumer credit data for September as investors continue to look ahead to the government's budget on November 26.

"We expect a continuation in the softness in the data seen last month as uncertainty ahead of the Autumn Budget continues to weigh on activity," Investec economist Lottie Gosling said in a note.

The BRC's shop price index for October is due Tuesday. Nationwide house price data for October are due during the week.

The U.K. plans to sell October 2030 gilts by programmatic tender Thursday.

Scandinavia

Norway will hold a bond auction on Wednesday.

Japan

Trump will visit Japan from Monday to Wednesday for his first summit with Japan's new prime minister, Sanae Takaichi. The meeting will be a test for the new administration, coming as trade data shows that Japan's shipments to the U.S. remain a weak spot, underlining worries about the impact of tariffs.

Eyes will also be on any comment from Takaichi's cabinet picks, including Japan's new finance minister, Satsuki Katayama, who has said that BOJ policy should align with government policy.

Speculation about the timing of the next rate hike by the central bank has been swirling ahead of its decision on Thursday. Markets widely expect the BOJ to keep its policy rate on hold at 0.5% as it assesses the full impact of U.S. tariffs on Japan's economy and its corporate sector. Economists also note that the BOJ is likely to want more time to communicate with the new Takaichi administration before making any moves. It will also release growth and price projections.

On Friday, Tokyo consumer price data for October offers an early indicator of country-wide trends. That will come alongside national industrial production and retail sales figures for September.

Japan's finance ministry is scheduled to auction about 2.7 trillion yen of two-year sovereign notes Friday--the tenor seen as the most sensitive to interest-rate expectations. Market participants will watch the bond sale as it comes on the heels of the BOJ decision.

China

A big week for China kicks off with the release of September industrial profit data, with markets watching to see whether the rebound seen in August will hold as Beijing continues its campaign against excessive competition and price wars, known as "involution."

But it is the Xi-Trump meeting in South Korea on Thursday that will steal the show. Despite a recent flareup in trade frictions, most analysts expect to see a de-escalation in tensions and some form of truce, which would give markets a big boost.

China is also scheduled to release October's purchasing managers index figures on Friday. "China's economic activity is expected to remain weak but stable in October," ANZ Research strategist Zhaopeng Xing said.

He expects the manufacturing PMI to have remained below the 50-mark separating expansion from contraction, tipping a reading of 49.6 versus 49.8 in September. Fewer working days in October typically weigh on production, though longer delivery times linked to new U.S. port fees may provide some support, Xing said. He expects the non-manufacturing PMI--capturing services and construction activity--to have edged up to 50.3.

Australia

Australian bond markets will focus on third-quarter inflation data due Wednesday, which could show price pressures persisting near the upper end of the central bank's 1%-3% inflation target.

If the CPI prints as expected, bets on a cut in interest rates by the Reserve Bank of Australia in November will fade.

Still, if the RBA passes up the opportunity to deliver its fourth cut this year in November, it will likely keep the door open to further easing next year, given the backdrop of a recent unexpected rise in unemployment.

More broadly, business surveys have been relatively upbeat, pointing to a gradual recovery in the economy, but one that is not likely to overheat in the near-term.

Global factors will also encourage the RBA to retain an easing bias.

South Korea

South Korea's economic growth likely accelerated in the third quarter, driven by fiscal stimulus and resilient exports. Economists surveyed by The Wall Street Journal expect GDP in the July-September period to have risen 1.0% on quarter and 1.5% on year-up from 0.7% and 0.6%, respectively, in the second quarter.

"The anticipated uptick is primarily owing to government cash handouts," said ING economist Min Joo Kang. Strong exports of semiconductors and vessels could continue, but their impact will likely be offset by weak shipments of other goods, Kang said.

Source: morningstar

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Devin

Economic

The Trump administration is launching a trade investigation that opens the door to new tariffs on Chinese goods, ratcheting up tensions ahead of a highly anticipated summit next week between the countries' leaders.

US Trade Representative Jamieson Greer on Friday announced the opening of a probe into whether China complied with a limited trade agreement reached in 2020 during President Donald Trump's first term.

The investigation "will examine whether China has fully implemented its commitments under the Phase One Agreement, the burden or restriction on U.S. commerce resulting from any non-implementation by China of its commitments, and what action, if any, should be taken in response," the agency said Friday in a statement.

The move threatens to exacerbate strained relations between Washington and Beijing, and could serve as another point of leverage for Trump in his meeting next Thursday with Chinese President Xi Jinping in South Korea.

The probe is being conducted under Section 301 of the Trade Act of 1974, which allows the administration to adjust imports from countries deemed to have adverse trade practices. Those investigations typically last several months, or more, but serve as the legal basis for the president to unilaterally impose tariffs.

Trump's first-term trade deal with China was based in part on Beijing's pledges to boost purchases of US agricultural products, a source of renewed tension this year.

The US and China have engaged in a tit-for-tat trade fight since Trump returned to office, which has reignited in recent weeks despite a truce that lowered levies between the two countries to allow for more negotiations. That pause on higher tariffs is set to expire mid-November.

The Trump administration has hit China with new curbs on exports of technology, while China has moved to restrict the flow of critical rare-earth minerals crucial to many sectors including energy, semiconductors and transportation. Trump has also threatened to add a new 100% tariff effective Nov. 1, if China does not relent on those rare-earth restrictions.

The trade fight has also seen China cut off purchases of US soybeans, hammering American farmers who have seen markets shrink amid the US president's trade war. Still, Trump has predicted he would reach a deal with Xi on trade and other matters, raising expectations for their long-awaited summit.

Source: Bloomberg Europe

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Adam

Economic

The Bureau of Labor Statistics on Friday released its much-anticipated consumer price index report, delayed a week and a half because of the government shutdown.

Here are the five most important takeaways:

While inflation is still running well ahead of the Federal Reserve’s 2% goal, it is showing no signs of runaway and in fact is easing at least a bit in some key areas. The headline gain of 0.3% monthly and 3% annually both were slightly below consensus forecasts. Same for ex-food and energy core, which ran at 0.2% and 3% respectively.

Markets continued to price in a near-certainty for a Fed rate cut next week, and upped the odds for another in December, with just a 4% probability the central bank won’t ultimately ease two more times before the end of the year, according to the CME Group’s FedWatch.

Aside from the headline numbers, the biggest watch point for markets was tariff and immigration impacts, which showed up ... a little. Apparel prices rose 0.7% and sporting goods costs jumped 1%. But smartphone prices actually declined 2.2% and are down 14.9% year over year. Gardening and lawn care services, an immigration-related category, posted a 13.9% annual increase.

Shelter costs are another key category, as they make up one-third of the weighting in the index. There was some relief on that front, with the index up just 0.2% monthly and holding at 3.6% annually. Owners equivalent rent, a critical component of shelter costs that asks homeowners what they could fetch in rent, rose just 0.1%, the smallest such move for the measure since November 2020.

With government data collection and reports under suspension because of the shutdown, this BLS only compiled this report because of its role as a benchmark for Social Security cost of living adjustments. This, then, likely will be the last official data report released until the impasse is resolved.