Though most major economic data remain on hold as the federal government shutdown approaches its fourth week, as the BLS indicated previously, the one exception will be this Friday’s September CPI report. The latest inflation data point will take on even greater significance amidst the vacuum of Fed speak as officials are now in their communications blackout period ahead the October 29 FOMC meeting. We expect to see core CPI inflation likely remained elevated in September at 0.34% m-o-m, after a 0.346% advance in August. We expect core goods inflation accelerated to 0.43% m-o-m in September from 0.28% in August as the impact of tariffs continued to materialize. We expect the uptick in inflation to persist till next 1-2 month readings and then move downwards due to base effects as well as slowing down in consumer spending due to weaker employment conditions accelerated by continued US shutdown. We continue to believe that the employment mandate of Fed will come into larger focus than the near-term uptick in core CPI & core PCE. Hence, we continue to believe in 4 cuts of 25 bps each in the next 4 Fed meetings till Mar’26 bringing the terminal rate to 3%. But in extreme short term we see a risk of 10-15 bps pull up in short end UST yields i.e. the 2yr USTs towards 3.55-3.6 levels from the current 3.45 levels. But post this bump up we shall see a secular decline towards 3.25 levels as markets start to appreciate the weakness in employment nos. On Fed speak, there are no Fed speakers scheduled this week due to Fed being in communication blackout before it's 28-29th Oct meet. On tariff front, we believe the terminal average effective tariff rate in US is around 14%. In dated UST auctions this week, we have 13 BN USD of 20yr supply on Wednesday & 26 BN USD of 5 year TIPS supply on Thursday. In US macro data, beyond CPI, we only have S&P PMIs and existing home sales data. In Row macro data, we have critical UK's Sep CPI data on Wednesday which we expect to come at 4.1% on headline & service inflation rising to 4.9% from previous month's reading of 4.7%. This might be the near term peak for UK CPI profile for the next few months. We also have Canada CPI on Tuesday and PMI data for Eurozone on Friday which we expect to be weaker than consensus.
