KEY DATA: Imports: +0.1%; Non-Fuel: 0%; Exports: +0.3%; Farm: -1%/ Claims: unchanged

IN A NUTSHELL: “With the labor market tight and inflation soon to reach the Fed’s target, a rate hike is looking likely.”

WHAT IT MEANS: Of the Fed’s two mandates, inflation has been the one that has not been reached. That could change soon. Import prices rose modestly in September, but the big story was a pop in fuel costs. Keep in mind, the energy price decline has reduced the overall inflation gain by roughly 0.5 percentage point. While September energy costs were still about 10% below 2015 levels, by the end of October, that decline could have been totally wiped out. That would put the overall inflation rate closer to 1.5% or a little higher and excluding food and energy, it would be above the Fed’s 2% target. Still, inflation is hardly a scourge that the Fed must meet head on with vigor. Excluding fuel, import prices were flat, so don’t expect domestic prices to rise sharply. Yes, imported food costs moved upward and capital goods prices rose modestly as well. But with imported consumer goods costs flat, inflation excluding energy, is not likely to surge. On the export side, the farm sector is still reeling from weak pricing power, but many of the other export industries are showing some ability to raise prices.

On the labor front, unemployment claims remained at record low levels. The desire to hold on to workers is great and that should keep job gains at solid levels.

MARKETS AND FED POLICY IMPLICATIONS: The Fed released its “minutes” of the September 20-21 meeting yesterday and it is clear that some members are pushing very hard for a rate hike as soon as reasonably possible. Normally, I would say that could occur at the next meeting, but since it ends the Wednesday before Election Day, the FOMC will likely pass but make it clear that an increase in December is quite likely. If I am correct, the Fed could have the cover to move in December as the labor market is clearly tight while inflation should be near if not even above the 2% target. In other words, barring some shocking news and given the dissension on the Fed, a December rate hike should be viewed as highly likely. The weak Chinese trade data, though, is a warning sign that the global economy is not in great shape and the Fed seems to look for any reason to hold back, so an increase isn’t a given.