Inflation spells disaster, while Americans unrest as expenses outpace income. The September CPI report shows headline inflation steady at 3.7% and core inflation slightly lower at 4.1%, with food and energy costs rising. The Fed survey indicates households foresee expenses growing by 5.3% next year but incomes by just 3%, and more people are struggling with debt payments. Though the Fed may raise rates again, most expect no hike in November as they try to tame service inflation of 5.7%. While the 30-year mortgage rate reached 8%, no housing market crash is expected since foreclosures did not approach 2010 levels just yet. The Fed aims to curb inflation but risks higher unemployment and an economic downturn in the process.
EQUITY
Major stock indexes closed lower on Thursday after consumer prices came in slightly higher than expected. Treasury yields rose after the data and jumped further following a weak 30-year bond auction, pressuring rate-sensitive sectors like utilities and real estate. Delta Airlines stock fell after the company trimmed its full-year profit outlook despite higher quarterly earnings.
GOLD
Gold prices rose to 2-week highs this week but pulled back after CPI data strengthened the dollar and boosted expectations for more Fed rate hikes. Some Fed officials reiterated the need for further tightening, though others expressed cautious optimism that inflation is heading back to target. Gold remains below $1900 but could see further upside if the dollar weakens amid cooling core inflation and a softening economy.
OIL
Oil prices initially rose on Thursday after the U.S. tightened sanctions on Russian crude exports, but then fell after the EIA reported record high U.S. crude production of 13.2 million barrels per day and a large 10 million barrel increase in crude inventories due to a sharp drop in exports. Gasoline and distillate inventories fell last week, providing some support to oil prices, but crude still closed lower on the day.
CURRENCY
The dollar jumped on Thursday after U.S. consumer prices increased more than expected. While overall inflation, excluding food and energy, was the smallest in two years, the unexpected increase in owners' equivalent rent led markets to conclude that the Fed's mission still faces challenges. The prospect of sustained high rates boosted the dollar index by 0.81% against major currencies like the euro and sterling, its biggest single-day gain since March. However, CME FedWatch still stands at 90% expectation of a pause.