Wall Street and Main Street are wringing their hands over the next inflation update from the Bureau of Labor Statistics on Oct. 24. The BLS’s monthly Consumer Price Index is a major inflation measure that could sway the likelihood that the Federal Reserve cuts interest rates when it meets on Oct. 29.

The last CPI data from August weren’t overly reassuring. It showed headline inflation increased to 2.9%, due mainly to recently instituted tariffs. For comparison, the CPI reading in April, before most of President Trump’s tariffs went into effect, showed inflation of 2.3%.

U.S. CPI inflation rate in 2025 by month:

  • August: 2.9%
  • July: 2.7%
  • June: 2.7%
  • May: 2.4%
  • April: 2.3%
  • March: 2.4%
  • February: 2.8%
  • January: 3%
  • Source:BLS.

The September CPI print is particularly anticipated because its release was delayed due to the government shutdown. So it lands just ahead of the Fed’s policy-making Federal Open Market Committee (FOMC) meeting, providing one of the last bits of information that could determine whether Fed officials think inflation is getting out of hand.

Ahead of the CPI report, Wall Street firms, including Bank of America, are updating their inflation predictions.

Why inflation matters to the Fed

The Fed’s monetary policy decisions are governed by a dual mandate to maintain low unemployment and inflation.

Federal Reserve Chairman Jerome Powell has been caught between a rock and a hard place in 2025 because of the central bank’s dual mandate for low inflation and unemployment.

Image source: Chip Somodevilla/Getty Images

Unfortunately, those two goals are often at odds, and that’s especially true in 2025.

When the Fed raises interest rates (as it did in 2022 and 2023), inflation falls but unemployment rises. Lowering the Federal Funds Rate has the opposite effect.

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That dynamic led Federal Reserve Chairman Jerome Powell to delay rate cuts over concern that they would fuel inflationary fires as tariffs increased costs to businesses and consumers.

The Fed’s inflation target is 2%, so the increase since spring has pressured the central bank toward patience. That hesitancy has increased the possibility that the Fed has fallen behind the curve when it comes to lowering rates to prop up the economy and support the jobs market.

Bank of America updates September CPI inflation forecast

If inflation continues to climb further above the Fed’s inflation target, Powell and company could find themselves boxed into a corner, once again hesitant to cut interest rates further over fears of sending inflation skyrocketing as it did in 2022. At that time Consumer Price Index inflation exceeded 8% before retreating due to stiff rate hikes.

Bank of America’s latest number crunching suggests that prices likely moved up again in September, but only slightly.

Year-over-year headline and core inflation should be little changed at 3.0% and 3.1% respectively.

Bank of America.

The uptick in headline inflation to 3% from 2.9% year over year is somewhat softened by their expectation that core inflation, which strips away volatile food and energy, remained unchanged from August.

Digging deeper into the numbers, Bank of America sees core goods prices up 0.1% from August, a “moderation from the trailing three-month average.” However, it thinks that moderation stems from a drop in used-car prices. Excluding that factor, it says “core goods prices likely rose by 0.2% [month over month,] in line with the last two months.”

The investment firm’s economists also see core services inflation up 0.3% during the month, a “slight moderation from the 0.4% m/m prints in each of the last two months.” However, they view that level as “still too firm for comfort.”

A bigger problem may be core services inflation’s year-over-year rise, which they forecast at 3.5%, far above the Fed’s target inflation rate.

We continue to expect tariffs to remain a source of goods price inflation over the next few quarters.

Bank of America.

Ultimately, Bank of America says the impact of tariffs on inflation isn’t yet over.

Unemployment rears its ugly head

We don’t have the September unemployment report because of the government shutdown, but worrisome data in August showed the rate was 4.3%, the highest since 2021.

U.S. unemployment rate in 2025 by month:

  • August: 4.3%
  • July: 4.2%
  • June: 4.1%
  • May: 4.2%
  • April: 4.2%
  • March: 4.2%
  • February: 4.1%
  • January: 4%
  • Source:BLS.

In the absence of the BLS’s jobs data, the Fed will likely rely on other measures to see if its quarter-percentage-point cut in September is helping.

Unfortunately, data from private-payroll processor ADP paint an ugly picture. ADP says the U.S. economy lost 32,000 jobs in September, far shy of the job gains economists expected.

It doesn’t help that there’s been a steady drumbeat of layoffs this year. According to Challenger, Gray & Christmas, U.S. employers have announced 946,426 layoffs this year through September. That’s the most since 2020 and up 55% from a year earlier.

Jobs data from Bank of America released earlier this month further muddy the waters. An analysis of payroll and unemployment checks flowing into its customers’ accounts suggests that the jobs market weakened again last month. In a separate report, Bank of America also highlighted a dropoff in hiring activity at small businesses.

The cracks in the employment market suggest that the Fed doesn’t have much choice but to keep lowering rates to support the economy. So if Bank of America is correct that headline CPI only inches up, it’s unlikely to pour cold water on another quarter-point cut at the meeting later this month.

“We do not think the report will be a game changer for the Fed. We expect” a 25-basis-point cut in October, concludes Bank of America’s analysts.

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