US inflation holds steady as Fed considers next steps

Moderating core inflation could boost hopes that Federal Reserve leaves interest rates unchanged

The Fed has raised interest rates on 11 consecutive occasions in an effort to quash increasing prices. AP

US inflation held steady in September as underlying measures added to hopes that the Federal Reserve will not raise interest rates when it meets this month.

The Consumer Price Index rose 3.7 per cent on an annual basis in September, the same rate as in August, the US Labour Department reported on Thursday.

But it slowed to 0.4 per cent on a monthly basis last month compared with 0.6 per cent in August, department data showed.

Core inflation, which excludes food and energy, was unchanged at 4.1 per cent.

Shelter costs were the largest contributor in the monthly all-item increase, the department said. The petrol index "was also a major contributor to the all items monthly rise".

Inflation has fallen considerably since reaching a peak of 9.1 per cent last summer.

The Fed has raised interest rates 11 times to its current 5.25 to 5.50 per cent range in an effort to quash increasing prices without driving the economy into a recession.

The Fed appears poised to achieve its soft landing, even with the labour market proving resilient in the face of these higher borrowing costs.

The latest data from the Labour Department comes as Fed officials signal they do not foresee further interest rate increases this year, pointing to tighter credit conditions caused by rising Treasury yields.

The Fed left its target range unchanged at 5.25 to 5.50 per cent when it met last month.

Economic projections showed a majority of policymakers at the time believed one more quarter-rate increase was probable this year.

Minutes released by the Fed on Wednesday showed a number of participants in its September 19-20 meeting suggested the conversation should “shift” from discussing how high interest rates should go to how long they should be elevated for.

Fed officials also noted they must proceed with caution as a car worker strike, potential government shutdown and rising oil prices cast uncertainty over the US economic outlook.

Traders largely anticipate that interest rates will remain steady for the remainder of the year, CME Group data showed.