Progress in slowing inflation stalled in September, Mr. Timiraos wrote, a sign that the road to fully eliminating price pressures could be bumpy. Looking back at the data released before the market:
Us consumer prices rose 0.4 per cent month-on-month in September, higher than market expectations of 0.3 per cent, after rising 0.6 per cent in August. Year-on-year growth came in at 3.7 per cent, in line with August, when the market had expected it to slow to 3.6 per cent.
Core CPI, which excludes volatile factors such as fuel and food, rose 0.3 per cent month-on-month and 4.1 per cent year-on-year, both in line with expectations, with year-on-year growth at its lowest since October 2021 and falling for six consecutive months from 4.3 per cent in August.
Federal Reserve officials said in recent days that soaring long-term Treasury yields have increased borrowing costs to the point of raising interest rates, and the bank is likely to leave the central bank's interest rate unchanged at its November meeting. The target range for the federal funds rate is now at its highest level in 22 years.
If there is stronger evidence that price pressures and economic activity are cooling, officials may feel more comfortable with the decision to hold rates steady, Timiraos wrote. But now they are in a position where they still cannot rule out a December rate hike and are unlikely to announce a period of pause.
Lara Rame, chief U.S. economist at FS Investments, also said, "The Fed can claim progress on inflation, but they definitely won't claim victory."
Timiraos also noted the Fed's focus on labor costs: Friday's nonfarm report showed some cooling in wage growth in September, which, if sustained, would also push inflation back to 2 percent.
Year-over-year change in average U.S. hourly earnings
But strikes by the United Auto Workers and Kaiser Permanente unions could push up wages sharply for a short period of time, pushing up wage growth across the economy.
"That could put sustained upward pressure on the prices of basic services, leading to a situation we don't want to see," said Carl Tannenbaum, chief economist at Northern Trust.
In addition, the Israeli-Palestinian conflict could cause gasoline prices to rise again. While the Fed's interest rate decisions typically don't pay much attention to commodity prices, higher oil prices could still dent consumer confidence and spending and drive up the cost of other products such as airline tickets and shipping, Timiraos said.
The good news is that housing costs are expected to ease headline inflation in the coming months, and used car prices have also seen a noticeable pullback.
Timiraos stressed that one key piece of data ahead of the November decision is the report on the Fed's favorite inflation measure, the PCE Price index, which could play a more important role then.
