Thanks to the Democratic Party‘s monthlong federal government shutdown, September’s consumer price index inflation report was not released until a week before November, and even then, the Labor Department only published the report from the defunct Bureau of Labor Statistics to figure out how much of a pay raise Social Security recipients will get in the coming year.
The unprecedented release of September’s shutdown-era CPI report was met with elation from the White House and outright ecstasy from Wall Street, with all three major American stock indices closing at a record-shattering high in anticipation of the Federal Reserve slashing the federal funds rate by a second consecutive 25 basis points. In fact, Treasury futures now safely expect that we’ll get three more rate cuts in a row.
The odd thing, though, is that September’s report was not objectively good. For the first time since President Donald Trump began his second term in January, headline inflation ticked back up to 3%, a full 50% above the Fed’s maximum 2% target, and core goods inflation, which used to be virtually nonexistent before the pandemic, is now consistently rising by 0.2% each month. Core CPI inflation indeed trended slightly downward, but core services excluding housing — a “supercore” inflation measure that the Fed likes to consider — is trending at 60% higher than the central bank’s target.
And yet, the September issue was received as good news, if only because of experts continually assuming the worst about the Trump economy. Trump’s tariff regime has indeed brought import duties to their highest rate in the century, but in practice, they’ve only hit an average effective rate of around 11%. Even if they were higher, the primary risk of consumption taxes was also the inhibition of growth, not stoking inflation.
And evidently, that isn’t happening. Monthly core CPI inflation is trending in the correct direction, as the 3% annual figure is less than economists expected. Because the BLS is otherwise inoperable, the Fed is forced to head to its October meeting blind, without any jobs data to offset an inflation report that is only seen as directionally correct because expectations were so dismal, even though the data puts inflation much higher than anyone should want.
TRUMP REDUCES THE DEFICIT BY 4% WITH TARIFFS AND HIS SIGNATURE TAX LAW
Furthermore, consider that based on the September data, Social Security recipients will get a 2.8% pay raise in the form of a cost-of-living adjustment. Will you get a 2.8% raise this year? If you didn’t, not only are you getting a real pay cut, but the cost-of-living adjustment granted to seniors is also actively making the problem worse.
It’s not a good inflation report, and in Trump’s first term, it would be considered an objectively abysmal one. But when the Fed, Wall Street, and the White House all want the same thing, a better-than-expected report counts as an outstanding one to justify rate cuts that we can’t even be sure the labor market warrants, so long as the BLS remains out of business.