The core CPI, excluding food and energy, rose 0.3% month-on-month, higher than the expected 0.2%; the year-on-year growth rate rebounded from 2.4% to 2.6%.
Nick Timiraos, a prominent financial journalist known as the "Fed's mouthpiece," calculated that the unrounded month-on-month increase in core inflation for September reached 0.33%, about 0.1 percentage points higher than most economists' expectations. The three-month annualized growth rate surged from 2% in August to 3.4%.
According to CME Fed Watch, after the data release, the probability of a Fed rate hike in October rose to 43.7%, while the probability of holding rates steady was 56.3%. The probability of holding rates steady by December was 4.3%, the probability of a cumulative 25 basis points rate hike was 55.3%, and the probability of a cumulative 50 basis points rate hike was 40.4%.
*Surge in Fuel Prices as the Main Driver*
The rebound in inflation this time shows a clear two-layered driving pattern. Energy prices jumped 5.2% month-on-month in September, with a year-on-year increase as high as 20.4%. Among them, gasoline prices surged 9.1% in a single month, up 34.2% year-on-year; the price of heating oil for winter heating rose an astonishing 74.2% over the past year.
The Middle East conflict blocking key maritime routes and damage to Gulf refineries are continuously feeding into U.S. end prices.
However, inflation is not solely driven by rising oil prices. Beyond the energy component, housing service costs rose for the second consecutive month, while transportation services and healthcare services both accelerated.
These service components, closely tied to the Fed's highly focused "Supercore Inflation (PCE Supercore)," collectively rising, indicate that tariff costs, supply chain disruptions, and massive corporate capital expenditures in artificial intelligence (AI) are broadly spilling over into prices of goods and services across industries.
*Probability of Further Rate Hikes Before Year-End Nears 90%*
Facing persistent price pressures, Bloomberg analyst Chris Anstey believes that after the Fed raised rates by 25 basis points in September to a range of 3.75% to 4%, recent official statements did not lay the groundwork for consecutive hikes in October. However, the higher-than-expected core inflation report almost confirms that the September rate hike was not a "one-off action," and the likelihood of further tightening this year is rapidly increasing.
Before the data release, New York Fed President Williams and Fed Vice Chair Bowman both emphasized that high long-term government bond yields have already tightened financial conditions, so policymakers do not need to act hastily in October.
However, after the latest data release, Kalshi data showed the probability of a rate hike in October jumped from 21% to 33%, while interest rate futures markets have nearly 90% probability priced in another rate hike by December, and even began pricing in three additional rate hikes by the end of 2027.
*Short-Term Caution in Capital Flows*
Due to higher-than-expected U.S. inflation data, markets have raised expectations for Fed rate hikes, suppressing global tech stock valuations; coupled with concentrated profit-taking in the AI storage sector, high-volatility stocks have seen amplified fluctuations. Short-term capital flows are becoming more cautious, and the market is awaiting new stabilization signals.
(Investing involves risk, and each investor's risk tolerance varies; independent thinking is essential. The author may trade based on market conditions.)
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