This inflation moderation comes on the heels of a stronger-than-expected job growth report for September. The combination of slowing inflation and robust labor market data may influence the Federal Reserve’s decisions in the coming months.
What does it mean for Fed rate cuts?
The 254,000 new jobs added in September came as a surprise to many economists. The unemployment rate also dropped to 4.1% from 4.2% in August, while wage growth accelerated to 4%.
This strong labor market performance, alongside cooling inflation, suggests the Fed may opt for a smaller interest rate cut when it meets in early November.
“Across every dimension, the September employment report showed a job market that was stronger than expected,” said Mike Fratantoni, chief economist of the Mortgage Bankers Association. “Job growth exceeded expectations with a 254,000 gain for the month, and the prior two months’ data were revised upwards by a cumulative 72,000 gain. The unemployment rate dropped from 4.2% in August to 4.1% in September.”
While these figures point to a strong job market and raise hopes for a “soft landing” as the economy navigates the Fed’s inflation-targeting policies, Fratantoni said that wage growth re-accelerated to 4%, a factor that could slow down the expected pace of interest rate cuts.