Finance
Will October’s inflation increase slow the pace of interest rate cuts?
Housing costs remain a major factor in inflation. (iStock)
Inflation increased to 2.6% in October, rising modestly from the previous month, according to the Consumer Price Index (CPI) released by the Bureau of Labor Statistics (BLS).
In October, inflation was above the annual inflation rate of 2.4% in September, and it increased 0.2% on a monthly basis, according to BLS. The cost of housing was the most significant contributor to the monthly increase in October, accounting for over half of the rise of the monthly all-items index. The price of food also increased by 0.2% in October. Energy prices remained unchanged after dropping 1.9% in the previous months. These lower prices are helping to bring down the overall cost of goods and services, offsetting increases in other parts of the economy.
If the pace of price increases continues to mount, it may influence the Federal Reserve’s pace of interest rate cuts. Last week, the Fed announced a highly anticipated quarter of a percentage point cut, lowering interest rates to between 4.5% and 4.75%. However, inflation has moderated substantially over the last two years, from a peak of 7% to 2.6%. Fed Chair Jerome Powell said the Fed remains committed to maintaining the U.S. economy’s strength by supporting maximum employment and returning inflation to its 2% goal.
“Markets have dialed back expectations for another cut and are currently pricing in somewhat lower ~60% odds of that outcome,” Realtor.com Chief Economist Danielle Hale said. “The November jobs report, due out in early December, is likely to be an important input in that decision alongside the latest inflation reading.”
For now, moderate inflation and the Fed’s dialing back of interest rates are likely to give consumers space to spend as the holiday season approaches, according to Gabe Abshire, CEO of Move Concierge.
“The average American consumer is still feeling the pinch of inflation, but not to the same extent as last year when it greatly hampered monthly household spending,” Abshire said. “As we move into the holiday spending season, we anticipate strong retail sales and a slow winter homebuying season.”
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Rate cut pace may slow
Bringing inflation down to the 2% target rate is likely to be the biggest challenge, according to Jim Baird, chief investment officer with Plante Moran Financial Advisors. Baird said that adding to the challenge may be how President-elect Donald Trump’s administration’s trade and fiscal policy plays out and the slow pace of cooling in the cost of housing and other services. These factors combined could lead to some volatility in inflation.
While it’s unlikely that the Fed would reverse course on its interest rate cuts, they could slow down the timing and pace of rate cuts next year. The Fed said in September it anticipated that if the economy evolves as expected, the Fed could dial back the federal funds rate to 4.4% at the end of this year and 3.4% by the end of 2025.
“With consecutive rate cuts now in the Fed’s back pocket, there is a broad sense that officials can view further easing through a more critical lens, particularly given the sustained positive momentum in GDP growth,” Baird said. “The economy has continued to grow at a solid pace, lifted by a resurgence in consumption, raising doubts about the ability of or need for short-term rates to be slashed as aggressively as the Fed’s projections have suggested.”
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Car insurance prices ease
Car insurance decreased 0.1% in October and the rate of annual increase slowed for a sixth straight month, according to today’s CPI report. That should be welcome news for drivers who have seen insurance costs soar over the last two years.
Insurance costs are still high, but the signs are there that the worst may be over, according to Josh Damico, vice president for insurance operations at Jerry. Damico said that claims-related costs that have driven insurers’ rate increases have stalled or fallen in recent months. Used car prices are down 18% from their peak in early 2022, while motor vehicle parts and equipment rose only 2.3% annually in October after flatlining for most of 2024.
“With claims-related cost pressures easing, many insurers are pausing rate hikes while others are unwinding some of their recent increases,” Damico said. “The rise in repair costs is a bit concerning, but the carriers feel good about vehicle prices and are looking to sell more policies.”
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People watch as Berkshire Hathaway chairman Warren Buffett is seen on a screen speaking at the Berkshire Hathaway Inc annual shareholders’ meeting, in Omaha, Nebraska, U.S., May 3, 2025.
Brendan McDermid | Reuters
Berkshire Hathaway shares are hanging on solidly Monday as investors process Warren Buffett‘s surprise announcement to step down and envision a new path for the conglomerate after his legendary 60-year run.
Buffett, 94, picked the very last moment at Berkshire’s annual meeting in Omaha, Nebraska, to tell his loyal shareholders that it’s time for Greg Abel, vice chairman of non-insurance operations, to replace him as CEO. The board voted unanimously on Sunday to make Abel president and CEO on Jan. 1, 2026, and for Buffett to remain as chairman.
Class B shares fell 2.9% in premarket trading Monday after hitting an all-time high at $539.80 Friday. Class A shares dropped 2.8% after closing at a record high at $809,350 apiece. Berkshire issued Class B shares in 1996 at a price equal to one-thirtieth of a Class A share. In 2010, Berkshire Class B shares split 50-for-1.
“Shareholders should welcome this transparent transition, but also have confidence that Warren isn’t going anywhere,” said Macrae Sykes, portfolio manager at Gabelli Funds and a Berkshire shareholder. “Retaining the position of Chairman means he can continue to mentor Greg and the Berkshire leaders, while also providing additional intellectual capacity when the inevitable time for more major capital allocation occurs.”
It marks an end of an epic era for Berkshire, which was a failing New England textile mill six decades ago when Buffett used an investment partnership he ran to take control. Berkshire has grown into a one-of-a-kind juggernaut worth nearly $1.2 trillion with businesses encompassing insurance, railroad, retail, manufacturing and energy. Buffett is handing over his reins on a particularly high note as Berkshire shares just reached a new peak Friday.
Berkshire Hathaway Class B shares
“Buffett leaves a company that is less reliant on his investing capabilities, with an array of leading businesses with strong cash flows,” Brian Meredith, UBS’ Berkshire analyst, said in a note. “Operationally, we expect little change at BRK and the culture/strategy to remain unchanged under Abel.”
The stock could also be reacting to Berkshire’s first-quarter results that showed a 14% decline in operating earnings, driven by a 48.6% plunge in insurance-underwriting profit. Berkshire said the Southern California wildfires led to a $1.1 billion loss during the period.
Berkshire shares have significantly outperformed the S&P 500, rising nearly 19% this year. Investors seeking relatively safe places to hide find Berkshire appealing because of the defensive nature of its huge insurance empire and the conglomerate’s unmatched balance sheet.
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