U.S. September CPI came in hotter than expected, throwing the disinflation process off track again
U.S. CPI rose 3.7% year over year and 0.6% month over month in September. Core CPI rose 2.6% year over year and 0.3% month over month, with both headline and core readings above market expectations.
By category, energy remained the main driver. Gasoline prices surged 9.1% month over month in September, accounting for more than half of the increase in headline CPI. The energy index as a whole rose 5.2% month over month, also a marked increase from August. But inflationary pressure was not limited to energy: the monthly increase in housing prices widened to 0.4%, core goods prices also rebounded, and core services prices remained sticky, suggesting that price increases had become more widespread.
After the data were released, market pricing for a Fed rate hike in October rose quickly. CME FedWatch showed the probability of a 25-basis-point hike in October climbing from about 21.6% to about 43.7%, with the probability of rates remaining unchanged falling accordingly. The market has not fully settled on an October hike, however. Most strategists still expect the Fed to hold in October and act in December, with the outlook depending on upcoming retail sales, PPI, and employment data.
U.S. Treasury yields rose in tandem. The 10-year yield briefly climbed above 5.2%, then retreated to around 5.19%–5.20% as stocks fell and funds flowed back into the bond market. The 2-year yield rose more sharply, further flattening the yield curve. The pullback in longer-term yields does not mean the inflation warning has passed; it largely reflects shifts between stocks and bonds, growth expectations, and the pricing of Treasury supply.
At the asset level, with short-term rates staying high, short-term Treasury funds such as BIL and SGOV can still offer attractive returns. Brokerages such as SCHW and IBKR may also benefit from higher interest income on customer cash, though their performance is also affected by trading volumes, credit spreads, and capital-markets activity. High-valuation AI stocks, housing, and small caps continue to face pressure from rising financing costs.
The key risk scenario ahead is the simultaneous combination of sticky prices and weakening demand. If upcoming data show that inflation is not continuing to cool while retail activity and employment begin to weaken significantly, markets will become more concerned about a stagflation-like mix—a scenario that would be harder on risk assets than inflation running high on its own. $BTC $ETH
U.S. CPI rose 3.7% year over year and 0.6% month over month in September. Core CPI rose 2.6% year over year and 0.3% month over month, with both headline and core readings above market expectations.
By category, energy remained the main driver. Gasoline prices surged 9.1% month over month in September, accounting for more than half of the increase in headline CPI. The energy index as a whole rose 5.2% month over month, also a marked increase from August. But inflationary pressure was not limited to energy: the monthly increase in housing prices widened to 0.4%, core goods prices also rebounded, and core services prices remained sticky, suggesting that price increases had become more widespread.
After the data were released, market pricing for a Fed rate hike in October rose quickly. CME FedWatch showed the probability of a 25-basis-point hike in October climbing from about 21.6% to about 43.7%, with the probability of rates remaining unchanged falling accordingly. The market has not fully settled on an October hike, however. Most strategists still expect the Fed to hold in October and act in December, with the outlook depending on upcoming retail sales, PPI, and employment data.
U.S. Treasury yields rose in tandem. The 10-year yield briefly climbed above 5.2%, then retreated to around 5.19%–5.20% as stocks fell and funds flowed back into the bond market. The 2-year yield rose more sharply, further flattening the yield curve. The pullback in longer-term yields does not mean the inflation warning has passed; it largely reflects shifts between stocks and bonds, growth expectations, and the pricing of Treasury supply.
At the asset level, with short-term rates staying high, short-term Treasury funds such as BIL and SGOV can still offer attractive returns. Brokerages such as SCHW and IBKR may also benefit from higher interest income on customer cash, though their performance is also affected by trading volumes, credit spreads, and capital-markets activity. High-valuation AI stocks, housing, and small caps continue to face pressure from rising financing costs.
The key risk scenario ahead is the simultaneous combination of sticky prices and weakening demand. If upcoming data show that inflation is not continuing to cool while retail activity and employment begin to weaken significantly, markets will become more concerned about a stagflation-like mix—a scenario that would be harder on risk assets than inflation running high on its own. $BTC $ETH