Latest (08:47 ET Thursday): The 08:30 ET test came in hot. Producer prices rose 1.3 percent in September, more than double the 0.6 percent consensus, with final demand goods up a record 2.6 percent on a 10.8 percent energy surge and prices less food, energy and trade services up 0.5 percent on the month. Retail sales rose 0.8 percent, beating the 0.3 percent forecast, though the control group rose only 0.1 percent. Pre-release snapshots had October hike odds at roughly 29 to 32 percent; no verified post-release FedWatch print was available at update time. The full producer price story is published separately in this beat.
Wednesday’s September consumer price index reset the Federal Reserve debate. The Bureau of Labor Statistics reported headline inflation of 3.7 percent year on year, above the 3.6 percent consensus, with prices up 0.6 percent on the month, core inflation of 2.6 percent year on year, up from 2.4 percent in August, and a second straight 0.3 percent monthly core increase. Gasoline rose 9.1 percent and fuel oil 15.3 percent on the month, but the core firming, in shelter, airline fares and services, is what moved pricing, because it suggests energy costs are bleeding into stickier categories.
Futures repriced within minutes and stayed repriced. CFO Dive reported traders lifting the odds of an October 28 hike to 37 percent from 22 percent on CME FedWatch, and later Reuters snapshots put the October probability at roughly 27 to 32 percent, still well above the pre-release level, with prediction markets briefly near 50 percent before settling back. December is the firmer signal: futures put the chance of a hike by December at about 89.5 percent. UBS Global Wealth Management now expects a December hike and a third increase in March 2027, arguing that stronger goods inflation alongside strong services inflation supports a higher for longer path.
The committee’s public split, already on the record this week, frames how October will be argued. San Francisco’s Mary Daly told Reuters on Wednesday that further hikes are likely needed but not urgently, and not in October. Chicago’s Austan Goolsbee called the September data discouraging, pointing to services inflation above 5 percent. Vice Chair for Supervision Michelle Bowman said before the release that she saw no urgent need for further action. Cleveland Fed expectations data added a quieter warning on Wednesday: consumers now expect inflation over the coming decade to average about 2.7 percent, the highest since 2007, according to the Cleveland Fed figures reported by CFO Dive.
Two events decide whether the repricing extends. September producer prices and retail sales are released Thursday at 08:30 ET, after this edition’s write time, and will test whether pipeline pressure matches the consumer print. Chair Kevin Warsh then speaks in Bangkok, including a public event with IMF Managing Director Kristalina Georgieva on Friday, his last scheduled appearances before the October 17 blackout ahead of the October 27 to 28 FOMC. Yields pulled back overnight even as hike odds rose, with the 10 year Treasury down 2.7 basis points at 5.19 percent in the morning market table, which says duration buyers are treating 5.2 percent as value even while the front end prices more tightening.