Hot September CPI sends rate-hike bets soaring
TLT•U.S. consumer prices rose 0.6% in September from August and 3.7% year over year, while core CPI increased 0.3% monthly and 2.6% annually. Markets priced a 49% chance the Fed would hold rates at its meeting in two weeks, up from 19% before the report.
1. Inflation accelerates
The Consumer Price Index rose 0.6% in September after increasing 0.4% in August, and was up 3.7% from a year earlier, compared with 3.4% in August. Economists had forecast annual inflation of 3.6%. Gasoline prices jumped 7.1% during the month.
2. Core prices and markets
Core CPI, excluding food and energy, rose 0.3% for a second month and increased 2.6% year over year, up from 2.4% in August. After the report, futures implied a 49% chance the Fed would keep its policy rate at 3.75%-4% at its meeting in two weeks, compared with 19% beforehand. The two-year Treasury yield rose 15.7 basis points to 4.95%, while the 10-year yield gained 11 basis points to 5.325%.
3. Economists assess rate outlook
Several market commentators said the report increased the likelihood of a rate hike, while others said a move this month remained uncertain. LPL Financial chief economist Jeffrey Roach said broadening inflation pressures could keep interest rates elevated and complicate the Fed’s decision.
