Usman Salis
● In a recent post, Lark Davis pointed out that US inflation took a small step back in September, with the Consumer Price Index (CPI) landing at 3.0%—below the 3.1% economists had predicted, though still a tick above August's 2.9%. Even this slight cooling was enough to trigger a wave of optimism in the markets, as traders took it as evidence that inflation pressures are finally starting to ease.
● The softer CPI reading has only strengthened expectations that the Federal Reserve is getting ready to cut interest rates. As Davis noted, the chances of a 25-basis-point cut at the upcoming Fed meeting are now sitting near 100%, with investors treating even modest signs of disinflation as reason to be bullish. "In this environment, 'less bad' still means bullish," he wrote, capturing how market sentiment has shifted toward cautious optimism.
● From a market perspective, the September inflation data had immediate ripple effects. Stock indexes climbed, Treasury yields pulled back, and rate-sensitive sectors like tech and real estate saw fresh money flowing in. It's clear that traders are positioning themselves ahead of what could be the Fed's first rate cut since it started tightening policy.
● Looking at the bigger picture, inflation has stayed within a 2.3% to 3.0% band over the last six months—a reassuring sign that the economy is finding its footing despite earlier worries about runaway prices. This steady downtrend could give the Fed the confidence it needs to shift focus toward supporting growth and jobs. That said, some analysts are warning that cutting rates too soon could backfire if wage growth or energy costs pick up steam later in the year.
● This latest data could be a turning point: "This cooler-than-expected print should be enough for the Fed to stay on track for rate cuts. A relief rally could be around the corner. Stay patient."
Usman Salis
