The US administration recognises the necessity of third-quarter inflation data for calculating next year’s social security benefits. Civil servants have been recalled to the Bureau of Labor Statistics, despite a prolonged shutdown, to provide this data. Originally set for release on October 15, the September inflation figures will now be available, offering the Federal Reserve updated data for its upcoming decision-making.

Impact Of Tariffs On Inflation

This inflation information could show the impact of tariffs on consumer prices, although the effect is expected to be gradual and moderate. While the data may not significantly shift the Federal Reserve’s approach, it offers at least some clarity. The US dollar has been slightly stronger in anticipation, but even surprising data is unlikely to alter rate cut expectations.

Labor market data remains more decisive for the Fed as it focuses on employment goals. With the labour market worsening, expectations of a rate cut persist regardless of inflation figures. Short-term effects on the dollar are possible with the return of this monetary policy-relevant data. However, any considerable change in interest rate expectations or USD value requires a significant surprise from the Fed, which experts deem improbable.

We are finally getting the September inflation report this Friday, October 24th, after a delay caused by the government shutdown. While this data is needed for things like social security calculations, it’s unlikely to shift the Federal Reserve’s course for next week’s meeting. For traders, this means we’re getting a piece of the puzzle, but not the final picture.

Expectations are for a slight increase in headline inflation, perhaps to around 3.0%, partly due to recent tariffs. However, with Core PCE, the Fed’s preferred gauge, having cooled to 2.1% last month, the central bank will likely view any tariff-related price pressure as temporary. Therefore, even an upward surprise in the data probably won’t stop the widely anticipated 25-basis-point rate cut next week.

Fed’s Focus On Employment

The Fed’s attention is fixed more on its full employment mandate, especially since the labor market has shown signs of softening. With non-farm payrolls averaging just 120,000 over the past quarter and the unemployment rate ticking up to 4.1%, the Fed is operating with a clear bias toward easing. This situation looks similar to the mid-cycle adjustments we saw back in 2019, where global worries prompted cuts despite solid domestic data.

For derivative traders, this means preparing for a short-term jolt in the dollar, but not a sustained trend change. We could see a brief rally in the USD if inflation comes in hot, creating an opportunity to position for the Fed’s dovish stance to reassert itself. Options strategies that benefit from a spike in implied volatility around Friday’s release, followed by a decline, could be advantageous.

The primary risk to this outlook is the small chance that the Fed surprises with a pause, which our experts consider unlikely. Such a move would trigger a significant reassessment of interest rate expectations, likely sending the dollar sharply higher and pressuring risk assets. Therefore, holding some cheap, out-of-the-money call options on the dollar or put options on equity indices could serve as a valuable hedge through next week’s meeting.

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