Fed Watch – 10/24/2025

with taylor st. germain

September CPI and Sticky Inflation May Delay Rate Cuts

This week on Fed Watch, ITR Speaker and Economist Taylor St. Germain breaks down the latest CPI data released on October 24th. With CPI holding at 3.0%, he explains why the Fed is likely to stay cautious and what that means for rate cuts through the end of 2025.
 
For businesses and investors, this episode highlights a critical window to act before borrowing costs rise again. If you’ve been waiting for lower rates, this analysis might change your timing.

Key Episode Takeaways

  • 00:01 – CPI Data Release and Initial Analysis
  • 01:37 – Implications for Federal Reserve Policy
  • 02:17 – Fed’s Likely Response and Future Outlook
  • 03:13 – Long-Term Inflation Forecast and Business Advice
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That current 3% headline inflation number, along with the 3% core inflation, it shows that inflation is still elevated. – Taylor St. Germain Share on X
This report today gives the Fed a little bit more ammunition to say it's slow and steady needs to be the way that we approach this. - Taylor St. Germain Share on X

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hi everyone, this is Taylor St. Germain with ITR Economics filling in for this episode of Fed Watch. Very excited to be here with you all. I’m tuning in from Tucson, giving a presentation out here in Arizona today, but I wanted to check in with you all for this October 24th edition of Fed Watch because the CPI data came out today.

And well, that’s a big deal, especially as it relates to the Fed. So I wanted to just unpack this a little bit. So the all items CPI, the consumer price index, rose 3.0% when looking at the September 2025 year over year growth rate.

That is a 0.3% increase on a month to month basis. So from August to September, the core CPI, which is everything except food and energy, also rose about 3.0% in terms of a year over year growth rate.

So we need to unpack what this means for the Fed, of course. And what this really means is that, well, inflation’s remaining sticky. We are continuing to see inflation remain persistent and it’s above the Fed’s target of 2%.

So that current 3% headline inflation number, along with the 3% core inflation, it shows that inflation is still elevated and it provides justification for the Fed to keep monetary policy restrictive or, a better way to put it, not cutting rates too quickly.

So for those of you that were hoping for immediate and fast interest rate cuts, this might not have been the ideal report for you. If we saw inflation firmly declining toward the Fed target, the Fed would be more confident in reducing rates.

But with inflation remaining sticky, the Fed might adopt a little bit more of a cautious stance. And again, for those of you that have listened to ITR, this isn’t news to us. does, this is what we anticipated is that inflation was going to remain a little bit sticky and the Fed is going to have to be laser focused on the data, but they might be a little bit more cautious as it relates to lowering rates this year.

So it’s important to note that our outlook on inflation hasn’t changed. Yes, we had inflation remaining moderate, but not moving closer to the Fed 2% target. And when we look at, especially 2026, the back half of next year, we expect inflation to continue to accelerate.

So when we pull apart this inflation and what this reading means, it just gives the Fed more ammunition that they should be a little bit more cautious in lowering interest rates because inflation continues to challenge the economy in terms of higher inflation rates.

So overall, I’m not ruling out interest rate cuts. Inflation is just one piece of the pie. Of course, the Fed’s always tracking employment or unemployment as well. But I think this report today gives the Fed a little bit more ammunition to say it’s slow and steady needs to be the way that we approach this.

If Chairman Powell and the Fed continue to take their approach, which is let’s watch the data and let’s be slow and steady, this reading today suggests folks might not be as optimistic about rate cuts as we move through the end of the year as they were before this report came out.

Again, our long-term view is inflation remains persistent, is that as we move into 26 and 27, we still see inflation elevated. We expect the lowest interest rates that you’re going to see are the interest rates you’ll see over the course of the next six months.

So it doesn’t change our advice. If you need to lock in long-term rates, if you need to borrow to invest in your business to prepare for this growth trend, still see the next six, nine months is a great time to do that because we only see inflation moving higher as we get into next year.

Thanks for joining me on this episode of FedWatch. We’ll continue to keep you updated as more information, more market reactions come out as it relates to this inflation number. But for now, I appreciate you joining me.

Please like and subscribe to Fed Watch wherever you listen to your podcasts. And I look forward to seeing you all the next one. Thanks so much. Take care for now.