US Dollar: Fed inflation focus into October FOMC – Danske Bank

Danske Bank analysts stress that September's Consumer Price Index (CPI) release will be the primary economic indicator in the United States. The headline and core inflation are expected to rise year-on-year, even with decreasing monthly readings. The Federal Reserve will scrutinize whether underlying price pressures are expanding, including those associated with AI investment.

They anticipate that only a significant upward inflation surprise would prompt the Fed to signal an additional rate increase during their October meeting.

The most crucial data release in the coming week will be the September CPI, published this afternoon. The bank forecasts headline inflation at 0.5% month-over-month (SA), 3.6% year-over-year (y/y), and core inflation at 0.2% m/m SA, 2.5% y/y, with energy prices driving the anticipated uptick in headline inflation. For the Fed, the focus will be on whether underlying inflation pressures are broadening.

Given that this is the final inflation print before the October FOMC meeting and recent Fed communication suggests little urgency to raise rates again, a clear upside surprise would be required for the Fed to announce a rate hike already in October.

Wall Street's Waller (voter) mentioned that AI-related demand is already impacting inflation, while Chicago Fed's Goolsbee (non-voter) echoed a similar sentiment, warning that AI-related investment is beginning to resemble aggregate overheating and may lead to more persistent inflation. These insights reinforce the argument for maintaining a tight policy stance in the short term, leaving comments hawkish on the margins.