Market participants are anxiously anticipating the release of the CPI for September. Perhaps more significantly, on Wednesday the Consumer Price Index is expected to show the headline inflation rate falling to a moderately cool 3.1% YoY. This CPI print comes in the middle of a four-week data blackout from D.C. It is a key touchstone for the markets, providing insight into the economic landscape before the blackout period of information restarts.
Federal Reserve Chair Jerome Powell is being told to consider changing the Fed’s inflation target. Fire experts warn that it should be designed to handle >3% or above. This complete turn-around from seeing air quality, to embracing it as a cause, reflects the prioritization of economic analysts and market participants alike. Many of them are now coming to the conclusion that sticking to their 2% target just isn’t realistic or needed in today’s economy.
The CPI release doesn’t just twinkle—it’s the last, high-flying blinking beacon before your radar gets shut off and goes dark again. This inherently makes it critical priority for both investors and policymakers. This data’s implications go beyond the overall numbers. They help shape monetary policy and market expectations. As of now, money markets are pricing in two full interest rate cuts by the end of the year. Even if the first CPI inflation reading of 2023 surprises to the upside, experts say it shouldn’t change this course all that much.
At this moment, inflation is not considered the most serious danger to the economy. Instead, creating jobs is the highest priority. Fear of inflation looms large, particularly in the housing market and with regard to labor. The most important element in framing economic forecasts is the robust nature of the labor markets. The story about “tariff inflation” has been continuing to crumble for several months now. Now, focus is starting to turn to the stronger economic measures that matter.
Surging housing and labor costs have contributed to persistent price pressures. Still, it’s hard to deny that recent trends are pointing to inflation cooling—partially due to a “slow bleed” from these sectors. Housing prices and wage growth are both rolling over, slowly releasing inflationary choke points. This change would allow for a much more dynamic approach to interest rates going forward.
Japan is gaining internationally at enhanced real returns. There are signs at least that capital flows might be slowly coming back to the country. Yet Japan’s trade minister admitted that it car exporters are the ones covering the increasing production costs. Failure to address this trend will have significant ramifications to our economic prospects both domestically and around the globe. These encouraging signs point to a longer-term improvement in Japan’s trade balance as Japanese exporters adjust to market forces.