Danske Bank strategists highlight September Consumer Price Index (CPI as this week’s key US release, with headline and core inflation expected to edge higher year-on-year despite moderating monthly readings. The Fed will assess whether underlying price pressures are broadening, including those linked to AI investment. They believe only a clear upside inflation surprise would prompt the Fed to signal another rate hike at its October meeting.

CPI print seen key for Fed

“In the US, the most important data release of the week will be the September CPI, released this afternoon.”

“We forecast headline inflation at 0.5% m/m SA, 3.6% y/y (prior: 0.6% m/m, 3.4% y/y) and core inflation at 0.2% m/m SA, 2.5% y/y (prior: 0.3% m/m, 2.4% y/y), with energy prices being the main driver of the expected pickup in headline inflation.”

“For the Fed, focus will be on whether underlying inflation pressures are broadening. With this being the final inflation print before the October FOMC meeting, and recent Fed communication signalling little urgency to hike again, we think it would take a clear upside surprise for the Fed to signal a rate hike already in October. “

“On the wires in the US, Fed’s Waller (voter) noted that AI-related demand is already spilling over into inflation, while the productivity gains that could eventually ease price pressures will take time to emerge.”

“Chicago Fed’s Goolsbee (non-voter) struck a similar tone, warning that AI-related investment is beginning to look like aggregate overheating and risks broadening into more persistent inflation.”

“This supports the case for keeping policy tight in the near term and leaves the comments hawkish on the margin.”