Inflation in the U.S. rose at its fastest pace in five months. What can we expect from the Fed?

The U.S. Consumer Price Index (CPI) rose 3.7% year-over-year and 0.6% month-over-month in September, according to the U.S. Bureau of Labor Statistics. The index posted its fastest pace of growth in the past five months amid rising fuel prices, according to Bloomberg. It came in slightly above the forecast of economists surveyed by Barron’s (3.6%), and inflation also accelerated slightly compared with August.

At the same time, the core CPI—which excludes volatile food and energy prices—rose by 2.5% and 0.2%, respectively, last month.

Energy prices rose 5.2% over the month, marking the largest increase since March, according to MarketWatch; gasoline prices jumped 9.1%.

S&P 500 futures fell 0.24% following the release of inflation data, while Nasdaq 100 futures dropped 0.46%. Dow Jones futures fell 0.1%.

Forecasts regarding a Fed rate hike have shifted dramatically following the release of macroeconomic data—whereas before the latest inflation figures were released, traders had almost no expectation of a rate hike at the Fed’s upcoming meeting in October (the probability of such a move was estimated at 20%), following the release of CPI data, that estimate jumped to 49.3%, according to the CME’s FedWatch tool. Markets now expect a rate hike in December with a probability of more than 96 percent.

Pimco economist Tiffany Wilding also confirmed forecasts of a possible Fed rate hike: “The September inflation data is bad news for the Federal Reserve,” she said (as quoted by MarketWatch). Following the release, a potential rate hike at the Fed’s meeting in two weeks’ time was once again on the agenda, she added.

"The main problem is that inflation rose 3.7% year-over-year, offsetting the 3% average wage growth," wrote Heather Long, chief economist at Navy Federal Credit Union, on X.

This article is being updated

This article was AI-translated and verified by a human editor