The US government understands that third-quarter inflation data is essential for calculating social security benefits for next year. Even with a government shutdown, officials have returned to the Bureau of Labor Statistics to gather this information. The September inflation numbers, originally set for release on October 15, will now be available, giving the Federal Reserve new data for its upcoming decisions.

Impact Of Tariffs On Inflation

This inflation data could highlight how tariffs affect consumer prices. However, the impact is expected to be gradual and moderate. While the data might not significantly change the Federal Reserve’s plans, it does provide some clarity. The US dollar has strengthened slightly in anticipation, but even surprising data is unlikely to alter expectations for rate cuts. The labor market data is more critical for the Fed, which is focused on employment goals. With the labor market showing signs of decline, expectations for a rate cut remain high, regardless of inflation figures. The return of this important monetary policy data may have short-term effects on the dollar. Still, any significant changes in interest rate expectations or the dollar’s value would require a big surprise from the Fed, which experts find unlikely. We will finally receive the September inflation report this Friday, October 24th, after delays due to the government shutdown. While this data is important for social security calculations, it is not expected to change the Federal Reserve’s plans for the upcoming meeting. For traders, this means getting a piece of the information puzzle, but not the complete picture. Analysts expect a slight increase in overall inflation, possibly reaching around 3.0%, partly due to recent tariffs. However, with the Fed’s favored measure, Core PCE, cooling to 2.1% last month, the central bank likely sees any tariff-related price increases as temporary. Thus, even a surprising upward shift in data is probably not enough to prevent the highly anticipated 25-basis-point rate cut next week.

Fed’s Focus On Employment

The Fed is primarily focused on its full employment goals, especially as the labor market shows signs of weakness. With non-farm payrolls averaging only 120,000 over the last quarter and the unemployment rate rising to 4.1%, the Fed is leaning toward easing its policies. This situation resembles the mid-cycle adjustments we saw in 2019, when global concerns led to rate cuts despite strong domestic data. For traders using derivatives, this means preparing for a short-term spike in the dollar, but not a long-term trend change. If inflation data comes in higher than expected, we may see a temporary rally in the USD, giving traders the chance to position themselves for the Fed’s likely dovish stance. Strategies that take advantage of increased implied volatility around Friday’s data release, followed by a decrease, may prove beneficial. The main risk to this view is the slim chance that the Fed surprises everyone by pausing rate cuts, which experts find unlikely. Such a move would lead to a significant reassessment of interest rate expectations, likely causing the dollar to rise sharply and putting pressure on risk assets. Therefore, holding some inexpensive out-of-the-money call options on the dollar or put options on equity indices could be a useful hedge leading into next week’s meeting. Create your live VT Markets account and start trading now.

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