Inflation continued to cool as election nears

Consumer prices rose 2.4% in September compared to a year ago, cooling slightly from the previous month and inching the U.S. closer to a "soft landing," in which inflation returns to normal and the economy averts a recession.

While welcome news for the Federal Reserve, the fresh data showed a smaller decrease of inflation than economists expected.

The report marks the final update of the nation's preeminent inflation gauge ahead of the presidential election next month. Price increases have proven a major point of contention between Vice President Kamala Harris and former President Donald Trump.

Inflation has slowed dramatically from a peak of about 9% in 2022, hovering right near the Federal Reserve's target rate of 2%.

The latest data indicated a gradual slowdown from a 2.5% inflation rate recorded over the prior month.

The inflation reading arrived about three weeks after the Federal Reserve cut its benchmark interest rate a half of a percentage point. The move dialed back the central bank's yearslong inflation fight, signaling a shift toward greater focus on ensuring a strong labor market.

"This recalibration of our policy stance will help maintain the strength of the economy and the labor market," Fed Chair Jerome Powell said at a press conference in Washington, D.C., last month.

Weaker-than-expected jobs data in both July and August had stoked worry among some economists about the nation's economic outlook.

But a jobs report last week defied any such concern by presenting a rosy picture of the labor market for September in which employers hired at a strong pace, a large share of people stayed on the job and wages rose at a fast rate.

Employers hired 254,000 workers in September, far exceeding economist expectations of 150,000 jobs added, U.S. Bureau of Labor Statistics data showed.

In theory, interest rate cuts stimulate economic activity and boost hiring. However, the Fed's interest rate decisions typically take several months before they influence economic activity. In any case, the latest jobs report tracked hiring for September, meaning the majority of the period reflected in the data took place before the rate cut.

Consumer prices have received close scrutiny with just four weeks left until Election Day.

The Biden administration touted the fresh inflation data in a statement on Thursday.

"We keep making progress, with inflation returning to pre-pandemic levels," National Economic Advisor Lael Brainard said in part. "President Biden and Vice President Harris will keep fighting to lower costs."

A decline in gas prices is expected to help nudge inflation downward. The average price of a gallon of gas is about 15% lower than where it stood a year ago, AAA data shows.

But an escalation of conflicts in the Middle East in recent weeks has triggered a sharp increase in oil prices, raising the possibility of a hike in gasoline prices over the coming days and weeks.

A cooldown of inflation likely increases the chances of an interest rate cut at the Federal Reserve's meeting on Nov. 7, just days after Election Day.

Prior to the inflation data release, the odds of a quarter-point interest rate cut next month stood at about 80%, according to the CME FedWatch Tool, a measure of market sentiment.