US Inflation Rises to 2.25% as Fed Faces Rate Cut Dilemma

The battle against inflation isn’t over yet. Though the job market shows signs of cooling, the Truflation US Inflation Index reveals consumer prices running at 2.25% annually as of October 2. While that’s well below this year’s 3.04% peak, it’s still above the Fed’s 2% goal—and could push back the rate cuts markets have been banking on.

What September’s Chart Tells Us

As TedPillows pointed out recently, inflation’s ticking up just as growth slows down. If prices don’t settle closer to 2%, the Fed might pump the brakes on cuts. But if they do cool off, policymakers will have breathing room to loosen things up.

The Truflation index over the past month has been all over the place: inflation dropped below 2.0% in early September, spiked to nearly 2.30% mid-month, fell back toward 2.0% by late September, and now sits at 2.25% in October. The takeaway? Price pressures are bouncing around, making it tough for the Fed to map out a clean path forward.

Why Prices Won’t Budge

A few stubborn factors keep inflation elevated: energy costs swing prices fast when oil jumps, housing and rent stay high, service sector wages push up prices, and lingering supply chain kinks from global shipping still ripple through. Inflation’s not racing like it did in 2022, but it’s not settling below 2% either.

For the Federal Reserve, this inflation bump makes timing rate cuts tricky. If inflation stays above 2%, cuts get delayed to avoid rekindling price spikes. If it drops, the Fed can start easing and give markets a boost. Everyone’s now watching jobs data and PCE numbers to see if cuts can happen this year.