U.S. inflation data to shape the Fed’s October rate decision

what happened

MarketWatch reports that several Federal Reserve officials have indicated in recent weeks that they would prefer to postpone an interest-rate increase from this month’s meeting until December. A sharp inflation reading could force a change of course. The September consumer-price index is due Wednesday, ahead of the Fed’s Oct. 27-28 meeting.

Headline CPI is expected to rise 0.6% from the previous month, the strongest increase in five months. Economists surveyed by the Wall Street Journal project annual inflation at 3.7%, up from 3.4% in August, with higher energy prices contributing to the move. Core CPI, which excludes food and energy, is forecast to increase 0.2%, compared with 0.3% previously, while its annual rate may edge up to 2.5% from 2.4%.

Traders currently assign a 17% probability to an October rate hike. Stephen Juneau, a U.S. economist at BofA Securities, wrote that a 0.2% core reading would not lift market expectations. Avery Shenfeld, chief economist at CIBC Capital Markets, expects a 0.3% increase and sees a hike this month. “There are too many items still growing at more than a 3% pace,” Shenfeld said.

The producer-price index, another wholesale inflation gauge, is due Thursday. CPI and PPI both feed into the Fed’s preferred personal-consumption expenditures price index. A large majority of Fed officials foresee one more increase this year, while markets have priced in three hikes in total, reversing the three easing steps taken in late 2025. Kurt Lewis of Piper Sandler expects three moves; Lindsey Piegza of Stifel Financial says at least three or four more may be needed to bring inflation under control.

why it matters

The CPI and PPI releases could reset expectations for the Fed’s policy path. Stronger core inflation would reinforce the case for an October hike, while softer data would support a pause and raise expectations for action in December.

instruments