This year, there has been much debate over how fast the Federal Reserve should cut interest rates to stabilize the jobs market, given inflation has been trending higher.
So far, Fed Chairman Jerome Powell has taken a mostly wait-and-see approach to interest rates, only reducing them by a quarter percent once, in September. Most expect a second cut when the Fed meets again on Oct. 29, but what happens after that is a bit murkier.
If more cuts are to follow, it will depend on how two important, often competing, economic trends—inflation and unemployment—evolve.
The Fed’s dual mandate:
- Low inflation
- Low unemployment
Those are important goals, but they create problems for the Fed because raising rates slows inflation by tapping the economic brakes, causing unemployment, while lowering rates boosts economic activity, decreasing unemployment, but causing inflation.
If inflation increases too fast, the likelihood that the Fed will continue cutting interest rates decreases — bad news for borrowers, including would-be home buyers eagerly hoping for friendlier mortgage rates.
We’ve seen a concerning inflation trend since President Trump announced reciprocal tariffs in April.
U.S. CPI inflation rate in 2025 by month:
- August: 2.9%
- July: 2.7%
- June: 2.7%
- May: 2.4%
- April: 2.3%
- March: 2.4%
- February: 2.8%
- January: 3%
Source: BLS.
Given that backdrop, there are clearly high stakes attached to the Bureau of Labor Statistics’ September Consumer Price Index report, scheduled for release Friday, Oct. 24.
Which brings us to today’s poll:
Wall Street’s CPI estimate for September
The consensus on Wall Street is that the September CPI will be 3.1% on both the headline and core figures, which exclude volatile food and energy prices. Bank of America recently forecasts that CPI will be up 3% on the top-line, and 3.1% for core.
Related: Bank of America resets inflation forecast ahead of CPI
If it’s 3.1%, it would mark the highest inflation rate since 3.3% in May 2024.
What it means if September CPI is above or below estimates
October’s Fed rate cut is pretty baked in, with the CME’s closely watched FedWatch tool projecting the odds that rates fall by 0.25% to a range of 3.75% to 4% at 99%.
Given concerns over the labor market, it’s unlikely that any reading in the ballpark of what is expected will eliminate the chances that rates will fall when the Fed meets next week.
The downside risks to employment have risen.
Federal Reserve Chairman Jerome Powell, October 2025.
However, an inflation reading substantially north or south of Wall Street’s consensus estimate will impact the odds of another Fed Funds Rate cut in December.
A too-hot inflation reading may mean that the Fed’s hands get tied, given that additional cuts could further increase inflation even as the full impact of tariffs on prices continues to push consumer costs up.
However, cold inflation data is likely to solidify the third quarter-point-rate cut in December, which many on Wall Street project, including Morgan Stanley.
Morgan Stanley’s Chief U.S. Economist Michael Gapen wrote in a note to clients this week:
“We continue to expect 25bp rate cuts in October and December, and for a terminal target funds rate of 2.75-3.0% to be reached by July of next year.”
That’s especially likely if job market trends worsen from already concerning levels. The BLS hasn’t issued its September unemployment rate because of the shutdown in Washington, D.C., but unemployment was 4.3% in August- the highest since 2021.
U.S. unemployment rate in 2025 by month:
- August: 4.3%
- July: 4.2%
- June: 4.1%
- May: 4.2%
- April: 4.2%
- March: 4.2%
- February: 4.1%
- January: 4%
- Source:BLS.
Related: CPI inflation data arrives as Fed interest rate decision looms
