September CPI Raises Odds of Fed Rate Cut

U.S. consumer prices rose 3.0% year-over-year in September (up from 2.9% in August) with core CPI at 3.0% (down from 3.1%); monthly gains were 0.3% overall and 0.2% core, gasoline jumped 4.1%, and the CPI release was delayed by the government shutdown. The softer-than-expected reading pushed markets and Fed funds futures to price a near-certain 25-basis-point cut at the Fed’s Oct. 29 meeting and a high probability of another cut in December, with rising odds of further easing into January. Policymakers and many economists now say the Fed has a clear bias toward cuts to support a weakening labor market — which is showing a measured slowdown and a spike in federal-worker unemployment claims — though some officials warn there is limited room to ease without becoming too accommodative. Treasury yields have fallen across the curve in anticipation of rate reductions, and some strategists expect continued easing into 2026. Risks remain from sticky services and goods prices and tariffs, and internationally Turkey is continuing to trim policy rates despite rising underlying inflation and weakening inflation expectations.