The rapid slowdown in the US inflation rate seems to have lost momentum, which may raise doubts among people about the extent of the Fed's interest rate cuts early next year.

According to a survey by The Wall Street Journal of economists, it is expected that the Consumer Price Index (CPI) will increase by 0.2% month-on-month in October. However, some of Wall Street's top inflation forecasters are betting on a 0.3% increase, the highest level in six months. At the same time, economists generally expect the year-on-year CPI increase to rise from 2.4% to 2.6%, the first reversal in eight months.

The question people want to know is whether this signals a sign of inflation rising again?

Economists point out that overall price increases in the economy have slowed down, but inflation in some key areas such as rent, housing prices, auto insurance, and car repairs still remains sticky, requiring more time for inflation to return to a 'normal' progress.

Therefore, the inflation rate will not continue to slow down to the Fed's 2% target, and more importantly, it will not remain at the target level in the short term. As Fed Chair Powell put it, one should prepare for a 'bumpy' ride.

He stated last week after the Fed's rate cut: 'Clearly, we are not announcing victory, but we believe that inflation will continue to decline along a bumpy path over the coming years and stabilize around 2%.'

The core inflation rate, which is more closely watched, is not sending positive signals. Core inflation rates excluding natural gas and energy can provide a better understanding of long-term inflation trends.

Economists expect the core CPI in October to rise for the second consecutive month by 0.3%, a pace higher than the comfort level of the Federal Reserve; the expected core CPI annual rate will also remain at 3.3%, almost unchanged since the beginning of last summer.

However, even with the CPI inflation picking up in October, Wall Street still expects the Federal Reserve to cut interest rates again at the last meeting of the year in December. But the expectations of rate cuts next year have already begun to shake.

The resilience of the US economy has increased the uncertainty of maintaining inflation at a 2% pace, as strong growth often brings greater upward pressure on inflation.

This is an important reason why investors expect the Federal Reserve to 'pause' rate cuts in the first month of 2025. They now believe that next year there will only be 3 rate cuts, instead of the 4 predicted by senior Fed officials at the September meeting.

"We expect the Fed to cut rates again in December, but pause the rate cuts in the first half of 2025," economists at TD Securities said in a report to clients.

The Fed's interest rate decisions are not based on CPI; policymakers prefer to use the Personal Consumption Expenditures (PCE) Price Index as the preferred indicator of inflation, but CPI can provide clues for predicting PCE.

Editor/Rocky