Making predictions is a risky, often foolhardy endeavor. In the words of baseball legend (and philosopher) Yogi Berra: “It is difficult to make predictions, especially about the future.”

And so, with that disclaimer out of the way, my take is that the latest U.S. consumer price index (CPI) report, released Thursday, isn’t worrisome enough to prompt another rate hike by the Federal Reserve at its next Federal Open Market Committee (FOMC) meeting in three weeks.

I still expect to see a rapid easing of inflation and decelerating economic growth, resulting in interest rates getting cut aggressively next year. Stocks are likely to embark on their next leg-up when this monetary policy pivot becomes more obvious. The headlines are dire these days, but keep your eyes on the long-term prize.

Cause for a pause…

Let’s parse the numbers. The Bureau of Labor Statistics reported Thursday that the CPI in September increased 0.4% month-over-month and 3.7% from a year ago, exceeding respective forecasts for 0.3% and 3.6%.

“Core” CPI, which strips out volatile food and energy components, increased 0.3% on the month and 4.1% on a 12-month basis, both in line with expectations. The Fed tends to put more weight on the core numbers, because they better reflect the underlying direction of price trends.

Shelter costs were the major factor in September’s inflation increase, representing more than half the rise in CPI. Real average hourly earnings fell 0.2% on the month but were higher by 0.5% from 12 months ago.

Overall, energy prices were up 1.5% in September from the previous month, seasonally adjusted, and 0.5% lower than a year earlier (see chart).

The latest news on inflation can be viewed as encouraging. A mending supply chain and slackening consumer demand are fueling a tangible and steady slowdown in the CPI. Higher interest rates are taking their toll on the economy, without crushing it.

The CPI reading for September didn’t contain any nasty surprises and showed that inflation is holding steady.

To be sure, the producer price index (PPI) for September, released Wednesday, increased 0.5% month over month, versus the estimate for a 0.3% rise. However, much of the increase came from gasoline. “Core” PPI was up 0.2%, in line with estimates.

In recent days, several Fed officials have asserted that recent rate hikes could preclude the necessity for further policy tightening. It pays to heed the “trial balloons” floated by Fed apparatchiks. Wall Street is currently pricing only a small chance that the Fed will hike rates again at its next policy meeting October 31-November 1.

Market pricing further indicates that the Fed will slash about 0.75 percentage point off the fed funds rate before the end of 2024. History shows that stocks soar after the Fed’s first cut at the end of a tightening campaign.

However, in the wake of the much-anticipated CPI report, the main U.S. stock market indices closed lower on Thursday as follows:

• DJIA: -0.51%
• S&P 500: -0.62%
• NASDAQ: -0.63%
• Russell 2000: -2.20%

Rising Treasury yields pressured stocks, with the benchmark 10-year rate climbing nearly 11 basis points higher to 4.70%. Some investors have concluded that higher yields will persist, which is negative news for stocks.

Energy markets on “tenterhooks”…

The inflation wildcard is energy. The Israel-Hamas war hasn’t directly affected the global oil supply yet, but the brutality could spread throughout the Middle East, creating a fraught backdrop for energy markets.

Read This Story: Blood and Oil: Israel-Hamas War Roils Markets

“A sharp escalation in geopolitical risk in the Middle East, a region accounting for more than one-third of the world’s seaborne oil trade, has markets on edge,” the International Energy Agency (IEA) stated in its Oil Market Report for October, published Thursday.

Oil prices have surged this week, after the weekend attack by Hamas on Israel reignited tensions in the Middle East and the “war premium” in the market came back.

“While there has been no direct impact on physical supply, markets will remain on tenterhooks as the crisis unfolds,” the IEA said in its report.

Amid this frustrating investment climate, are you looking for market-thumping gains with mitigated risk? Consider the advice of my colleague Jim Pearce, chief investment strategist of Personal Finance.

Case in point: If you had taken the initial recommendation of Personal Finance to buy Chevron (NYSE: CVX), and held on, you’d be sitting on a whopping return of nearly 3,200% (that’s not a typo).

Want to get aboard “The Next Chevron?” Click here for details.

John Persinos is the editorial director of Investing Daily.

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