U.S. inflation expected to have slowed in October

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Investing.com —┬áHeadline inflation in the U.S. is expected to have slowed in October, in what would be a boost for Federal Reserve officials keen on corralling price pressures in the world’s largest economy.

The U.S. consumer price index (CPI) is seen by 3.3% in October on an annualized basis, decelerating from a rate of 3.7% in September. The is estimated to edge up slightly by 0.1%, down from 0.4% and the smallest increase since May.

Bringing inflation back down to the Fed’s 2% target rate has been the major objective of a long-standing series of interest rate hikes by the central bank, meaning that policymakers will likely welcome signs that price growth is cooling for the first time in three months.

But the , which takes out more volatile items like food and energy, is projected to rise by 4.1% annually and 0.3% . Should these numbers be confirmed, it would highlight why some policymakers have stressed in recent days that rates may not be “sufficiently restrictive” to tamp down inflation to 2%.

Indeed, Chair Jerome Powell noted last week that the Fed “will not hesistate” to further raise borrowing costs from their current range of 5.25% to 5.50% “if it becomes appropriate.”

“The Fed […] has pushed back on any notion of earlier rate cuts, instead trying to retain a tightening bias,” analysts at ING said in a note.

Meanwhile, reaction in Treasury yields to Tuesday’s data could be in focus, as tight financial conditions have been cited by Fed officials as critical to sustainably easing inflation.

However, economic optimism generated by a slowdown in CPI may help push down on yields, lessening the cost of capital for firms, and threatening to heap renewed fuel on to price growth.

“In an environment where the market starts to play with the change of the rate cycle discount while central banks are still pushing back against any notion of rate cuts, more rates volatility is to be expected,” the ING analysts said.

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