Inflation is expected to rise in October, raising concerns about interest rate cuts from the Fed

October’s annual rate of inflation may have risen for the first time in seven months, suggesting that the period of steady price declines may be stabilizing after more than two years of gradual cooling.

Donald Trump’s election victory has introduced significant uncertainty about future inflation trends and how the Federal Reserve might respond if inflation picks up again. Trump has promised to curb inflation, primarily through expanded oil and gas drilling.

However, mainstream economists warn that some of his proposals – including imposing steep tariffs on imports and carrying out mass deportations of migrants – could have inflationary effects if fully adopted, potentially raising costs across sectors and complicating efforts to to control inflation.

“Tax cuts and tariffs, among other policy proposals, have the potential to significantly affect inflation, inflation expectations and economic growth,” said Seema Shah, global chief strategist at Principal Asset Management. “With uncertainty surrounding fiscal and trade policies, inflationary pressures and economic resilience, the Fed is likely to slow its rate-cutting pace.”

What is the current rate of inflation?

Economists surveyed by FactSet estimate that consumer prices rose 2.6 percent in October from a year earlier, up from September’s 2.4 percent increase. On a monthly basis, prices are expected to have grown by 0.2 percent from September to October and maintain the same pace as the previous month. These figures suggest a modest increase in inflation, potentially indicating a shift towards more stable price levels.

Excluding the often volatile food and energy sectors, core prices are expected to have risen 3.3 percent year-on-year, in line with the previous month’s rate. From September to October, core prices are expected to have risen 0.3 percent for the third straight month — a pace that, if sustained, would exceed the Federal Reserve’s two percent inflation target. This steady increase in core inflation suggests persistent pressures that could challenge the Fed’s inflation target.

How will inflation affect the economy?

A rise in prices could raise concerns in financial markets that efforts to control inflation are losing momentum. That trend could prompt the Federal Reserve to reconsider plans to cut its key interest rate in December, despite earlier signals from officials suggesting potential rate cuts. Sustained inflationary pressures may prompt the Fed to maintain a more cautious approach to interest rate adjustments.

However, most economists remain optimistic that inflation will resume its downward trend over time. Consumer inflation, which rose to a peak of 9.1 percent in 2022, has gradually eased, although prices remain roughly 20 percent higher than three years ago. These persistently higher costs have dampened public sentiment about the economy and played a role in diminishing confidence in the Biden-Harris administration’s economic leadership, contributing to Kamala Harris’ defeat in last week’s presidential election.

What does Trump’s victory mean for Wall Street?

After Donald Trump’s election victory, stock prices rose as investors showed optimism over his proposed tax cuts and deregulation, which they expect will stimulate the economy and boost corporate profits. However, bond yields also rose, signaling concern that inflation may remain high or even rise further as markets weigh the results of Trump’s economic policies on long-term price stability.

The economy is performing more robustly than expected, growing at an annual rate of nearly three percent over the past six months. This growth is largely driven by strong consumption, particularly among higher-income households, which continues to stimulate economic activity, exceeding previous projections by economists.

This article includes reporting from the Associated Press