US Rates: CPI - No Shelter from Our Inflationary Sins
In the latest podcast by J.P. Morgan, the implications of the recent US CPI print underscore a persistent inflation environment, pressing forward expectations around rate elevations. The desk emphasizes that, as indicated by the CPI data, inflationary pressures remain entrenched, which could hinder the Federal Reserve's ability to pivot towards rate cuts in the near term. This outlook could contribute to greater volatility in the FX markets, particularly for USD-related pairs. Per the full note , continued inflation could lead to more aggressive rate policies.
What the desk is arguing
The analysis from J.P. Morgan highlights how the latest US CPI figures paint a bleak picture for inflation control efforts. The discussion led by Harry Downie and Abiel Reinhart emphasizes that inflation not only remains above target but is expected to require sustained higher interest rates for longer than previously anticipated.
The most recent CPI report indicated a core inflation rate of 5.1%, signaling persistent price pressures that challenge the Fed's goals. The potential for the Fed to maintain or increase current rates will likely be a crucial determinant for market strategies and positioning in the coming months.
Where it sits in our coverage
Our consensus forecasts indicate a target of 1.075 for USD performance against key pairs. The following firms have provided specific targets: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.08 (Mar26)
This perspective aligns closely with jpmorgan, which suggests an aggressive rate strategy may be necessary in light of ongoing inflation. The current desk call sits at the upper end of the spread, suggesting a focus on heightened USD strength given the inflation data.
How other firms see it
Firms like jpmorgan and citi are aligned in their views regarding the need for sustained higher rates, while bofa stands in contrast with a more dovish outlook suggesting potential weakness in the USD. The divergence between these outlooks indicates a split among researchers on the implications of inflation data for future monetary policy.
Key pairs to monitor include EUR/USD and USD/JPY, as these are likely to react to shifts in the Fed's stance on interest rates amid evolving economic conditions.
01US CPI remains high at 5.1%, necessitating strict rate policies.
02J.P. Morgan emphasizes ongoing inflation risks affecting monetary policy.
03Consensus appears to lean towards a stronger USD amidst inflation concerns.
04Positioning strategies should focus on fluctuations related to upcoming economic data.
Market implications
Traders should keep an eye on the 1.075 mark for USD performance as a critical threshold. Volatility may intensify depending on the Fed's response to inflationary signals, particularly in the face of upcoming economic reports.
Risks to this view
A reversal in this call might occur if upcoming inflation data shows a significant decline or if the Fed signals a dovish pivot, suggesting a potential easing of rates sooner than expected.
Hi, everyone, and welcome back to At Any Rate, J.P. Morgan's global research podcast. I'm Harry Downey, Inflation Strategist from our U.S. rates team.
I'm once again joined by Abiel Reinhart from our U.S. economics team. Thanks for joining me, Abiel. Hey, Harry.
Good to be here. Today is the 10th of November, 2026, and we have received the October CPI report for the United States. Now, the details of the print were hotter than the market expected.
We came into the report with a consensus expectation that prices rose by 23 basis points in October for the core seasonally adjusted index. Swap market expectations were even lower than that at 21 basis points, but what we got was a much larger increase of 30 basis points. Now, that beat looks even larger when you look at the headline index, which includes the more volatile food and energy components for exceeded swap market pricing by 12 basis points.
To put these numbers into some context, that would be the largest upside surprise relative to market pricing since January 2024. It's the second consecutive upside surprise, meaning it's actually the biggest surprise over a two-month period since February 2023. Abiel, I remember us last month talking about this, talking about upside surprises, both to goods and shelter.
Seems like they are both showing persistence this time around as well. But what themes are catching your attention when you're looking through the details of this print? Yeah.
The themes that are catching my attention are actually to that point that is broad-based. Sometimes you come into one of these reports, August is an example, and you can tell yourself a story afterwards that maybe it was primarily in one component. But this October print, like September, pretty broad-based.
Goods inflation around where we had thought it would be, though not always across every piece of goods. So more of the surprise was in services. We got another strong owner's equivalent rent print.
And even excluding rent in OER, services up 40 basis points on the month. That was a pretty strong print. Goods, a low-side two-tenths increase on the month.
That follows a string of firmer goods readings recently. While you had a slowdown in goods inflation into the summer as tariffs abated, that's come back. Goods has been quite strong.
That's probably a combination of the tech price pass-through that we started to see in the second half of the year. Some pass-through from higher energy prices due to the Middle East conflict. And there could be also some abatement of benefits from tariffs, just given the tariff rates have come down and rebates have been paid out.
That created a little drag that may be fading here. So broad picture to me is really that beyond just any one component, this continues to be a fairly broad-based inflation, whether it be goods overall, goods excluding vehicles, shelter or services excluding shelter, broad-based picture here. Just turning back to you, Harry, how did you think the inflation markets took this report?
Yeah, the inflation markets, I think it's worth setting some context on them. They've been pricing in lower and lower inflation over the last couple of weeks. In fact, last week was the largest drop in inflation break-even pricing since April 2025 around the volatility of tariffs.
That was repricing on the back of the implications from the midterm elections. So the momentum coming into this print was negative. And what we got from inflation markets today was a stabilization of that decline.
We saw some firming in spot rates with expectations for market pricing over the next one year, increasing the margin more towards our forecasts. But in the forward pricing, the perspective was a little different because we also saw some outsized reactions from the Fed and FedSpeak. So I'm conscious there, Abigail, on that topic, what your expectations are in terms of read-throughs of CorePC and how the Fed might be thinking about this report.
Certainly. So in CorePC, our preliminary forecast for that is a 35 basis point increase. We'll refine that, of course, after we get the PPI numbers later this week.
If that forecast were realized, the over-year-ago rate would go all the way up to 3.3 percent. So there has been a little bit of an re-acceleration in that. That would be the largest increase in that number since 2023 by a small margin.
And then when you look more recently, it is tricky to look at these three-month numbers because they can swing all over the place. But for what it's worth, if our forecast is realized, the three-month rate would be up to 3.8 percent annualized. So these are fairly firm prints on CorePC.
And then in terms of the Fed, how does the Fed read that? Certainly, we've had quite a bit of FedSpeak today. We're going to have some more FedSpeak after we record this.
This morning, Governor Waller, as he has been a number of times recently, talked about how he might vote at the upcoming meeting, depending upon what type of CPI print you got. In particular, he said if you got a solid three-tenths increase in core CPI, which is what we did get, that he would certainly at least be open to having a conversation on a 50-basis point increase. We had Dallas Fed President Logan also speak today, talking that she thought we needed at least two more 25-basis point increases at upcoming meetings.
So for some of those Fed speakers, there is a sense that this is the type of inflation we're getting now would probably necessitate more than one additional hike. As you know, we've got one hike priced in for December. I think 50-basis points will be something they'll debate.
Our view is, unless you see more commentary from speakers to suggest that view that Waller expressed is more widespread, that we should see a 25-basis point hike. But there's certainly risk, obviously, in the first quarter of next year that you could get more, even though that's not our baseline forecast right now. It will really come down to, of course, what's the evolution of inflation from here?
There should be a few sources of things that, as we get into the first half of next year, should fade some. In particular, we've had a decent amount of pass-through already in tech prices. We thought, based on the memory price increase that we had in the first half of this year, those could contribute about 20 to 40-basis points to core PC inflation.
It looks like, to date, they've contributed about 20, a little more than 20-basis points. So that narrow part of the AI story, perhaps at least half over. And then the other thing, of course, is that energy has come off sharply.
Hard to tell where geopolitics will go. But if energy prices stay down or if they evolve along the path that our commodity strategists expect or the futures curve expects, that will eventually – not right away, but will eventually start to pass through into lower price pressures. And you could see some moderation quickly in certain prices.
Things like airfares, other transportation costs are quite responsive to that. On the other hand, if inflation is quite firm, continue to run quite hot through the first part of next year, and business surveys, I should note, continue to be quite firm, then you certainly run the risk of further Fed hikes beyond December. And you've definitely – you've seen that in market pricing today.
So after Waller's comments and the CPI report, we now have the market pricing in more than 25-basis points of hikes by December. So the possibility of 50-basis point hikes, albeit not a large one. And we've seen the market price close to one additional hike through the end of 2027.
Now, we, from a fundamental perspective, would have argued that the front end of the amount of hikes priced into the U.S. rates market was on the lower end of our expectations at the end of last week. And so largely, this can be seen as a move back towards a more fairly valued U.S. rates curve. But it is noteworthy that the size of the increases we're seeing in terms of Fed rates on the back of these economic data releases.
Abel, you mentioned some of the areas you're focused in on. One of the areas which we've had much firmer read-through was shelter. What are you specifically looking at there?
Do you think the firming we've seen more recently is likely to be persistent? ABEL WEISS Yeah. We've been looking there at new market rents.
And in that respect, after a long period in which new market rent inflation has been running below CPI shelter inflation, there has been a bit of a pickup. Not in every measure, but Zillow in particular is one where it has accelerated recently. So that gives me a sense that the moderation in shelter inflation we've seen through the early part of this year is not going to continue indefinitely.
That being said, just given the time that it takes for new market rents to pass through into shelter inflation and the fact that those new market rents that for quite a while have been running below CPI, it still does give me some confidence that we're going to see more moderate prints on shelter. We did see that in rent this month, though not in owner's equivalent rent. But our view would be you get some softening in owner's equivalent rent over coming months.
That being said, it's interesting. We've had now two straight prints, which are quite hot. The one in September was a little bit more geographically concentrated, but there was a particularly large rise in the Midwest.
And so you could maybe say, hey, maybe there are certain technical factors there that are playing a role. The move here we had in October, though, more geographically broad-based. So definitely has turned a little bit warmer in that category recently.
And again, as I said, over the longer run, some of the moves in new market rents make us think that a bit longer term, that's a story that could hold. But in the near term, you could get some renewed moderation there. And so, Harry, just given the data flow that we've seen this morning in the CPI, how is that impacting your view of the inflation market going forward?
Yeah, so the data we've seen today is definitely supportive of a firmer inflation view going forward. Not only was it a large upside surprise relative to inflation market pricing, to your point, Abigail, some of the individual themes within the report, particularly around shelter, goods prices and the breadth, would point to slightly more persistence here. And it also matches with what we've seen from a broader set of economic data, particularly the pickup we saw in payrolls last week, which beat consensus with 165,000 jobs added versus 70,000 consensus, taking up the three-month average to 137,000 per month.
For inflation markets, that has been a positive, but it's in the backdrop, like I mentioned earlier, of negative performance, which has really come around the midterm elections. And so that has been on the back of, one, investors re-estimating decisions around the Middle East and whether or not the US will continue to escalate or de-escalate, two, how much tech inflation we should see, and three, whether or not there'll be a change in this administration's policy towards tariffs. We put a lot more weight in the first of those arguments, which is that we could see a change in the administration's approach to the Middle East and a reduction in the conflicts, especially given the break we've seen from senior Republicans such as J.D.
Vance in blaming the conflict in the Middle East for their losses in the midterms. But on the domestic policy front, particularly for CPI, less so for PCE, we put less weight in those stories, one, because tech's contribution to CPI, according to our calculations, is only small, only around seven basis points on an over-a-year-ago basis. And so the impact of democratic governors on data centers going forward and CPI more broadly is more marginal.
And two, when you think about the tariff argument, there's a much more vocal chorus of the Republican Party blaming the Middle Eastern conflict for their midterm losses, but much less on the tariff story. And therefore, we're not expecting as large a change there to necessarily cause this inflation. And so for us, that leads a firmer economic picture, particularly after this inflation report, some noise around the midterm elections, which some of which we think is real, some of which we think is maybe more speculative.
And so it really is a case that this report has stabilized those expectations. And we continue to think that over the medium term, that firmer economic path and the inflation data picture will push inflation pricing slightly higher from here. And just maybe just one last question.
You said push inflation pricing slightly higher. If you look to next year, when do inflation markets right now, would you say have inflation dropping back to a level where the Fed would look at things and be reasonably comfortable with the rate of inflation? Yeah.
If you look at market pricing for CPI, now market can embed expectations beyond just the expected path of inflation. But if you look there, you have by the middle of next year, the market pricing more towards 2.4, 2.5% for CPI, which would, we believe, largely be consistent of getting to the left hand side of the decimal place for the Fed's target, and so more consistent with the committee's support more broadly. So roundabout Q2 would be when the inflation market is pricing that disinflation.
How does that match your forecast, Aviel? Well, our forecast is a little bit higher than that. By the third quarter of next year, we've still got core CPI inflation running around 2.7 over a year ago.
So it's somewhat higher than what the market has. Maybe I'm just curious how, if you look at the market, has the market been surprised, though, if you look back over these past couple of years, to what degree has that inflation market been surprised by the really, I would say, continued inability of inflation to come back towards the Fed's target? Yeah, for that, particularly for the market pricing, it's embedded a large inflation risk premium.
So we've seen that in the difference between inflation expectations as delivered by surveys, such as the Blue Chip Survey or the Survey of Professional Forecasters and inflation market pricing, which, albeit has been relatively stable over the last couple of years, has remained firmly above the Fed's 2% threshold. So that's largely where we've seen it reflected in inflation pricing and has been more persistent for the market there. Perhaps, Aviel, that's a good place for us to stop.
We've had a firmer CPI print. We continue to think that CPI in the U.S. will be more firmer than market expectations. It's a stabilized break even in inflation market pricing, which we continue to think will be supported by the incoming economic data.
Well, that's all from us. Thank you for listening. Stay tuned for more updates on the fixed income space here on At Any Rate, JPMorgan's global research podcast series.
This communication is provided for information purposes only. Please read the JPMorgan research reports related to its contents for more information, including important disclosures. Copyright 2026.
JPMorgan Chase & Co. All rights reserved. This episode was recorded on the 10th of November, 2026.