New inflation data doesn't change our expectations for Fed easing

In a novel twist during a government shutdown, the US Bureau of Labor Statistics released the Consumer Price Index (CPI) — a one-off data release that was required to calculate Social Security payment adjustments for 2026. The report came in slightly weaker than expected, yet prices have risen by 3% over the past year.¹ Investors may be inclined to view this as “too hot” for the Fed’s liking, especially given the central bank’s stated 2% inflation target. That interpretation, however, misses the broader context.

It’s been clear for some time that inflation would likely rise above 3% this year and next. This is largely due to the lagged effects of tariffs making their way through the economy. The Fed is likely to look past this development, viewing it as a one-time price shock rather than a sign of sustained inflation. History has typically supported this view, and there’s little in the current data to suggest otherwise.

Inflation expectations suggest the Fed may have achieved price stability

Importantly, the bond market’s expectations for inflation over the next three to five years have been remarkably stable.² This suggests that the Fed may have succeeded (at least for the time being) in achieving price stability. Even with prices on goods expected to rise in the near term, the market has been signaling confidence in the Fed’s long-term credibility. If this were to change and inflation expectations were to rise sharply, then our outlook for risk assets would too.

Alternative data sources show labor market weakness

Meanwhile, the labor market continues to show signs of weakening.³ Although the Bureau of Labor Statistics hasn’t been able to release its usual data due to the shutdown (except for the CPI), other sources provide insight. For example, Automatic Data Processing (ADP) continued to reflect softness in employment trends and showed the economy losing private sector jobs in September. The absence of government data hasn’t necessarily obscured the broader picture. The labor market has weakened significantly, and that has implications for monetary policy.

We expect Fed easing to continue

There was nothing in the new CPI report to suggest that the Fed will alter its easing path. We continue to expect the central bank to ease between now and the end of the year and likely into next year. The Fed remains focused on reinvigorating growth, and the current inflation readings are unlikely to derail that effort. In this environment, we aren’t inclined to fight the Fed. Markets should continue to perform, in our view, particularly as monetary policy becomes more accommodative. We tend to favor non-dollar assets, especially in emerging markets, where valuations have remained attractive,⁴ in our opinion, and growth prospects have been improving. Within the US, cyclical assets may benefit as the Fed works to support the economy.

Important information

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All figures are in US dollars unless otherwise stated.

All investing involves risk, including the risk of loss. 

Past performance does not guarantee future results. 

Investments cannot be made directly in an index. 

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

The Consumer Price Index (CPI) measures the change in consumer prices and is a commonly cited measure of inflation.

The Employment Cost Index details changes in US businesses’ cost of labor. It’s prepared quarterly by the Bureau of Labor Statistics.

Gross domestic product (GDP) is a broad indicator of a region’s economic activity, measuring the monetary value of all the finished goods and services produced in that region over a specified time period.

Inflation is the rate at which the general price level for goods and services is increasing.

Monetary easing refers to the lowering of interest rates and deposit ratios by central banks.

The price-to-earnings (P/E) ratio measures a stock’s valuation by dividing its share price by its earnings per share.

A risk asset is generally described as any financial security or instrument that carries risk and is likely to fluctuate in price.

Treasury Inflation-Protected Securities (TIPS) are US Treasury securities that are indexed to inflation.

The opinions referenced above are those of the author as of Oct 24, 2025. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations.