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Data released today showed the CPI rose 0.4% in October. According to analysts at Wells Fargo, the report is unlikely to materially change the Fed’s near-term outlook.

Key Quotes:  

“Headline inflation was up 0.4% in October, marking the largest one-month gain in eight months. But, the headline was boosted by a 3.7% pop in gasoline prices. Stripping out the volatile food and energy components, however, core CPI was up a more modest 0.2% in October.”

“October’s ease in core inflation suggests the underlying trend, while running in line with the Fed’s target in recent months, is still not running at levels that would materially change its outlook.”

“The PCE deflator””the Fed’s preferred inflation gauge””trended to 2% in 2018, but has fallen back since. In fact, this measure has run below the FOMC’s target for all but 11 months of this 10+ year expansion. Given the undershoot in PCE inflation, we suspect policymakers’ concerns about inflation still remain skewed toward it running too cool rather than too hot, and, barring a material resolution to trade policy, we expect the Fed will cut rates another 25 bps in the first quarter of next year.”

“While we expect the trend in inflation to firm, dimmer prospects for U.S. growth amid the ongoing trade war will likely prevent inflation from breaking meaningfully above the Fed’s target in the near-term.”