September 2025 US CPI: Rate Cuts Remain On The Cards

Price Pressures Persist

Headline CPI rose 3.0% YoY last month, cooler than consensus expectations for a 3.1% YoY increase, though inflation still touched the 3% mark for the first time since last June. Measures of underlying price pressures, however, pointed to some degree of moderation in price pressures, as core CPI rose 3.0% YoY, and the ‘supercore’ index (aka core services less housing) rose 3.2% YoY, unchanged from August.

Meanwhile, on an MoM basis, both headline and core CPI printed softer than expected, at 0.3% MoM and 0.2% MoM respectively, in what was also a surprise dip from a month prior.

As usual, annualising these figures helps to provide a clearer idea of the underlying inflationary trend:

• 3-month annualised CPI: 3.6% (prior 3.5%)
• 6-month annualised CPI: 3.0% (prior 2.3%)
• 3-month annualised core CPI: 3.6 % (prior 3.6%)
• 6-month annualised core CPI: 3.0 % (prior 2.7%)

Tariff Pass-Through Continues

As well as the above, the composition of the price pressures that continue to bubble away remains key, not least taking into account that the vast majority of upside inflation risk continues to stem from the Trump Administration’s tariff policies. While the FOMC are viewing these tariffs as a ‘one-time shift’ in the price level, the degree to which tariffs are being fully passed on in the form of higher consumer prices remains unclear.

In any case, core goods prices rose 1.5% YoY in September, unchanged from the pace seen in August, and perhaps suggesting that we may well be past the peak in terms of tariffs being passed through. Core services prices also sent an optimistic message, rising 3.5% YoY, a cycle low, and implying a lesser risk of inflation persistence.

Limited Fed Policy Implications

Despite inflation continuing to move away from the FOMC’s 2% target, the September CPI report did little to alter the market’s view of the near-term policy outlook, with the USD OIS curve continuing to fully discount a 25bp cut both next week, and in December.

Looking Ahead

Taking a step back, and as noted, it seems highly unlikely that today’s data will materially move the needle in terms of the FOMC outlook. Not only do policymakers remain prepared to look-through any tariff-induced price pressures for the time being, but most have also been very clear indeed that the reaction function now hinges primarily on the employment side of the dual mandate, with an easier policy stance necessary in an attempt to prop up a stalling US labour market.

Consequently, my base case remains that 25bp cuts will be delivered at both the October, and December meetings, with such a pace of easing likely to continue into the early part of next year as well, with policymakers continuing to adopt a ‘run it hot’ stance that in turn tilts risks to the US economy, and US assets, to the upside.