Inflation remains elevated above the Federal Reserve's official targets -- no matter how you measure it -- complicating the Fed's interest rate policy.

The Consumer Price Index (CPI), which measures retail or consumer-level inflation, remained steady in September. Data released Thursday morning by the U.S. Bureau of Labor Statistics showed that September CPI increased at an annual rate of 3.7%, in line with the August number and ahead of Wall Street's expectations of 3.6%. In addition, core CPI, which excludes volatile food and energy prices, increased at an annual rate of 4.1%.

While both numbers are well below the levels a year ago, they are still well above the Fed's 2% official target.

Meanwhile, the Producer Price Index (PPI), which measures inflation at the wholesale or producer level, accelerated to an annual rate of 2.2% year-on-year in September 2023. It's the highest since April and well above the market consensus of 1.6%.

Core PPI rose by 2.7% from a year earlier in September, up from a 2.5% rise in August and ahead of market expectations of a 2.3%

Still, the elevated inflation number does not change much the prevailing monetary policy narrative.

The probability of another rate hike in November remains low, roughly where it was a day ago, before the release of September CPI numbers.

That's according to the CME's FedWatch Tool, which publishes the probability of changes in the Federal Funds Rate (FFR). This time, it points to a 10% probability of FFR hike compared to 9.1% a day ago.

"Given that core consumer inflation continues to slow, the Federal Open Market Committee is likely to keep the fed funds rate unchanged when it meets on November 1," Gus Faucher, Chief Economist at PNC Financial Services, told the International Business Times.

"Monetary policy is currently contractionary, weighing on economic growth, and slowing inflation gives the central bank the leeway to keep the rate in its current range of 5.25% to 5.50% for now."

The nation's central bank has several good reasons for keeping interest rates steady in November. First, as some Fed officials have stated publicly, the rising Treasury bond yields have already done part of the Fed's job. For instance, the 10-year Treasury bond reached 4.80% last week, up from 2.6% a year earlier, tightening liquidity in capital markets.

"Headline inflation was a little hot because of energy, but core prices remained subdued," said David Russell, Global Head of Market Strategy at TradeStation. "This number isn't great for the bulls but doesn't give much reason to be bearish. The latest surge in yields has gotten rates to a place where the Fed feels much less need to act. Inflation and the Fed will be less of a news driver in coming months as all the tightening gradually takes effect."

Second, inflation numbers are taking a back seat on domestic and international developments that raise uncertainty. On the domestic front, there's the prospect of a shut-down of the government over a Congressional failure to continue funding its operations.

On the international front, there's a range of Middle East wars with unpredictable consequences for the region and the world.

Nonetheless, a November pause isn't the precursor of a pivot, meaning that interest rates could stay high for long—as long as inflation remains above official targets.

"While the Fed has made significant progress in its war against inflation, it is premature to declare victory with more work still to be done," Kendall Dilley, CFA, CMT, portfolio manager at Vineyard Global Advisors, told IBT.

"While the moderation we have seen over the past fifteen months is unquestionably good news, policymakers will likely remain concerned that underlying price pressures could persist in an economy that continues to thrive, as indicated by the Atlanta Fed's 3Q'23 GDP Forecast of 5.1%."

Callie Cox, US Investment Analyst at eToro, agrees. "Now, the Fed's job clearly isn't done yet," he told IBT. "Stubbornly high inflation – even at 3 or 4% – can warp how we think about money. And the chance of a recession is still significant. The Fed has hiked rates aggressively, and we still don't know what cracks are forming underneath the surface."

Inflation