The two-year yield, which closely tracks Fed action expectations, fell to 4.32% from 4.62% and was on course for its biggest decline since 2008.
Core inflation, which excludes volatile food and energy prices, rose to an annual rate of 6.3%, from 6.6% previously, and better than economists had expected.
The readings ease pressure on the US central bank to maintain its policy of aggressively raising interest rates to fight inflation. Rate hikes of 0.75 percentage points could be reduced to 0.50 in the future.
“Signs of a slowdown will help Fed officials moderate the reduction in the pace of tightening, although a stronger-than-expected December payroll print could further complicate the issue at the margin,” the economist said. American Morgan Stanley, Ellen Zentner.
Fed Chairman Jerome Powell suggested earlier this month that strong consumer demand, a tight labor market and more stubborn price pressures could force authorities to raise rates next year. at slightly higher levels than they had expected.
The figures are also a welcome boost for US President Joe Biden whose administration has been dogged by high inflation that has raised fears of a sharp economic slowdown next year as the Fed tries to tame price pressures. .
Mr Biden said the data showed “we are making progress in bringing inflation down”, particularly prices at the grocery store and at the gas pump.
“It will take time to bring inflation back to normal levels – and we may see setbacks along the way – but we will keep going and help families with the cost of living,” Mr Biden said.
However, the latest readings showed that energy costs have risen again. The energy cost index rose 1.8% in October after falling in the previous three months. The gasoline index rose 4% during the month, also after three consecutive declines.
Other areas of inflation that were of concern, including in the services sector, are now beginning to subside. The pace of basic services slowed after rising 0.5% in October, after rising 0.8% in September. Costs for medical services fell by 0.6% and education services by 0.1%.
So far this year, the Fed has raised its benchmark interest rate six times, raising the risk that higher rates could tip the world’s largest economy into recession.
Polls show that many Americans believe the United States may already be in a recession, and inflation was the top issue for many voters in this week’s midterm elections.
Despite the rate cut, Nationwide chief economist Kathy Bostjancic said the Fed would maintain a restrictive framework.
“The one-month results are not a trend, and continued high inflation rates will keep the Fed in a hawkish frame of mind,” she said.
“Looking ahead, we expect inflation to decline only gradually as prices for basic services remain sticky. This will lead the Fed to maintain a very restrictive level for the policy rate throughout the year.
Wage increases are stabilizing
Part of the slowdown in services could be lower labor costs as more people search for jobs amid an uptick in the unemployment rate to 3.7%.
Most workers’ wage indicators show that the strong wage increases of the past 18 months have stabilized and started to decline. Labor costs are a key driver of inflation, as companies will often compensate for their higher payroll by charging their customers more.
Rental costs have started to fall, however, although annual rates are still the highest on record. After hitting two consecutive 25-year highs in August and September, the pace of rent inflation slowed to 0.7% in October.
And as the declines in new rents that have appeared in real-time metrics from sources such as Apartment List and Zillow are starting to factor into the government’s next measures, this factor should also reduce inflation.
The pace of rising transport costs also slowed, rising 0.5% in October from 1.9% in September.
With the exception of automakers, which are still struggling to acquire the computer chips they need, supply chain disruptions have largely eased.
Shipping costs are back to pre-pandemic levels. Saved freighters off the Port of Los Angeles and Long Beach have been cleared.
Economists expect to see prices fall for many key goods. Used cars, the price of which soared last year as a shortage of computer chips sharply reduced the availability of new cars, are expected to have fallen from September to October.
Wholesale used car prices have been steadily declining, but have yet to be fully reflected in retail prices.
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