An Inflation Report That Is Disappointingly High: CHART OF THE DAY
Whatever number of rate hikes you wanted this year before this morning, you should now want one more. The Fed had made an 0.3% core CPI report its trigger for a rate hike in September. Now we see another such. Skipping an October hike would now be a very political choice:
If before this morning’s CPI inflation data point you wanted 0.50%-points of interest-rate hikes by the Fed in the rest of 2026, you now want 0.75%-points.
If before this morning’s CPI inflation data point you wanted 0.25%-points of interest-rate hikes by the Fed in the rest of 2026, you now want 0.50%-points: that is, one at the October FOMC meeting and one at the December meeting.
Thus for the Fed not to hike interest rates at its next meeting later this October is a highly political decision. It is a decision that they have not a dual but a triple mandate. It is a decision that they want to balance not just inflation and unemployment, but also to tiptoe around to not annoy Donald Trump.
In his SGH Macro Advisors newsletter, Tim Duy writes:
Tim Duy: SGH Tim Duy Fed Watch <http://sghmacro.com/>: ‘We think inflation expectations have already embedded close to 3%…. The Fed’s immediate problem is that it signaled an intention to skip the October FOMC meeting, but market participants don’t see that signal as entirely credible….The Fed lacks credibility because Fed Governor Chris Waller previously made a 0.3% core-CPI a trigger point and Warsh validated that trigger point with the September rate hike. Moreover, Warsh has set himself up as an inflation hawk. How does he explain not hiking on the back of a hot print?…
Tim thinks Warsh is leading the Fed. I am not so sure.
Plus we have:
Justin Wolfers: <https://newsletter.platypuseconomics.com/p/the-inflation-surprise-nobody-wanted>: ‘The headline: Inflation is worse than we thought and higher than it ought to be. No one is going to be happy about it…. Over the past year, consumer prices rose 3.7%. For context, the Fed aims for an inflation rate around 2%. There are three ways to read today’s number. First, in absolute terms: It’s too high…. Second…. Headline inflation isn’t coming down. Because of energy prices… at best, it’s stuck at a troublingly high level. Third… Wall Street folks were expecting something a little lower…. That’s the real news today…. We didn’t know it would be higher than expected…. In September alone, prices rose 0.6%. That’s after rising 0.4% in August…
And:
David Rovella: US Consumer Prices Jump Most in Five Months <https://www.bloomberg.com/news/newsletters/2026-10-14/us-inflation-rises-most-in-five-months-evening-briefing-americas>: ‘The prices Americans are paying for goods jumped in September at the fastest pace in five months as accelerating inflation intensifies the affordability issue ahead of midterm US elections. Consumer Price Index data showed gasoline climbed 9.1% in September from the prior month…. An unexpectedly sharp increase in consumer prices reinforced Wall Street expectations of Fed action, in turn curbing investor appetite for riskier assets…. CoreWeave Inc.’s bonds hit levels that usually signal distress. Its chief said the market is acting “irrationally.” A closely watched measure of semiconductor powerhouses such as Nvidia Corp. and Broadcom Inc. extended a six-day drop to about 12% amid mounting concerns about higher rates, lofty valuations and the massive cost of building artificial-intelligence infrastructure…