By François Rimeu, Senior Strategist, Crédit Mutuel Asset Management

The acceleration in consumer prices (CPI) and producer prices (PPI) in September points to a pickup in core inflation as measured by the personal consumption expenditures (PCE) price index, the Federal Reserve's preferred gauge, to around 0.3% month-on-month for September. This should heighten concerns among members of the Federal Open Market Committee (FOMC), without challenging our baseline scenario of a pause. In September, Fed Chair Kevin Warsh stressed the importance of underlying trends over one-off fluctuations in the data.

What we expect

The FOMC is expected to keep the Target range for the federal funds rate at 3.75%–4.00%. The breakdown of the vote will be closely watched, following September's unanimous decision to raise rates, which bolstered Kevin Warsh's credibility. The statement is likely to change little from September: solid growth, a stable labor market with no wage pressures, elevated inflation and a reaffirmed commitment to price stability. At the press conference, Chair Warsh is expected to stick to his approach of offering no guidance on the future path of rates.

Conclusion

The Fed should maintain a hawkish tone despite leaving rates unchanged. Risks to inflation remain tilted to the upside, driven by geopolitical tensions and strong AI-related investment, which is fueling demand and US growth.