What to Focus on in Friday's CPI Report and Flash PMI Data
Economic data are back! Well, at least some. Here's what to know and watch — and how it could affect next week’s Fed policy decision.
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Friday we will see the return of some economic data, and following the dearth of data points and with the Fed’s policy meeting next week, you can bet the market will be reading more than just the headlines. Yes, we’re referring to the September Consumer Price Index report, which will be published at 8:30 AM ET, and the Flash October PMI data from S&P Global, which we’ll get shortly after the stock market open.
Setting the GDP and Rate-Cut Table
Before we discuss what the market expects for those reports, let’s first revisit rate-cut expectations and GDP forecasts.
Per the CME FedWatch tool, the market puts the probability of another 25-basis point rate cut at the Fed’s October policy meeting next week at 98.9%.
The same CME FedWatch tool shows the likelihood of another 25-basis point rate cut exiting the Fed’s December policy meeting at 91.8%
By the end of the March quarter, the tool shows a 48.1% chance the Fed funds rate is at 325-350 basis points, which means a total of three 25-basis point rate cuts over the next four policy meetings.
On the GDP side of things, the most recent rolling forecast published by the Atlanta Fed GDPNow model on October 17 had a 3.9% figure for Q3 2025. So far, the model has not shared an initial figure for the current quarter, and given the government closure, we would share that the 3.9% number reflects only three data points published in October. Two of those were the ISM Manufacturing and Services PMI figures, with the third being the monthly Treasury Statement. Needless to say, the lack of September data points is reflected in that 3.9% figure.
Turning to the New York Fed’s Nowcast model, which was also last updated on October 17, it shows a 2.34% figure for Q3 2025 GDP and a 2.25% one for the current quarter.
What Does the Market Expect?
With those figures in hand, we can better assess any potential changes once the market has digested the September CPI and October Flash PMI report.
The market consensus has the September CPI report coming in as follows:
Headline CPI: Up 0.4% month over month, and the same figure we received for August. On a year-over-year basis, the headline CPI figure is expected to accelerate to 3.1% from 3.0% in August and 2.7% in both June and July.
Core CPI: Up 0.3% month over month, and up 3.1% year over year — the same figures we received in July and August.
If the September CPI figures closely resemble those expectations, on their own, they would likely raise questions about the two rate cuts to come this year seen in the CME FedWatch tool.
Jobs, Jobs, Jobs
As we’ve heard from Fed officials, they are closely watching the employment market. And in case you don’t remember why, we’d refer you to the August and September job losses found in the monthly ADP Employment Change report and the ISM Manufacturing and Services PMI reports showing the same over the last few months.
This means the comments about job creation in the Flash October PMI report Friday will be the next hard look at the employment market. We’ll get a more definitive look in early November when ISM publishes its October PMI reports, but remember what we see Friday from S&P will be one of the few things we get before the Fed’s policy decision next week.
Odds are bad news on the jobs front in Friday’s report will be good news for the market. And sad to say, but the worse it is, the more likely we are to see the market contemplate something more than 50-basis points in rate cuts between now and the end of 2025.
All we have to go on ahead of the October Flash data being published Friday are the headline expectations for S&P’s Manufacturing and Services PMIs — the Flash Manufacturing figure is expected to remain steady at 52.0, while Services PMI is thought to dip to 53.5 from 54.2 in September.
If the job creation commentary points to accelerating job losses, that would land in the bad news camp discussed above. However, if the data point to a pickup in job creation, something that is likely to be a low probability given the impact of the government shutdown, odds are the market will continue to expect a 25-basis point rate cut next week.
Lastly, we’d be remiss if we didn’t say we'll be watching the input and output pricing commentary in the Flash October report. We’ll be sizing it up against the September CPI report, but barring egregious comments about input and output pricing trends, it will be what’s said about October job creation that catches the market’s eye.
Now, let’s see what the data say, and go from there.
