The latest Consumer Price Index (CPI) data revealed that prices rose 0.2% in September, coming in slightly above the expected 0.1% increase. Year over year, prices rose 2.4% compared to the 2.3% estimate.

Max Kettner, HSBC chief multi-asset strategist, joins Catalysts to discuss what the hotter-than-expected print means for the Federal Reserve's next interest rate cut.

While inflation remains sticky, Kettner explains, "We've never really been in the camp that it's going to completely die." He argues that the market has been "exaggerating" around inflation, and that "people are freaking out a bit too much." He notes that terminal rate expectations are too low, explaining that there's lingering bearishness from slightly weaker-than-expected third quarter growth.

Kettner adds that "supercore" inflation over the last three months has hovered around 4.5%, saying, "That should give the Fed a bit cause for concern that yes, they can continue cutting rates but not down to the sort of 2.5%, 3% level that the market was pricing in just a couple of weeks ago."

Moving forward, he believes that 25-basis-point cuts at next two meetings are "pretty much baked into the cake." He notes that once rates hit 4% the path ahead becomes a little less clear:

"Should we go really all the way down to 3%, or should it be stuck somewhere closer to 4%? Now that's something that we've got to deal with in six months' time."

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This post was written by Melanie Riehl