Economists: Hot PPI shows Fed's work is not done — SkimNews
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- September PPI jumped 1.3% month-over-month, the biggest monthly gain since March 2022 and more than double the 0.6% consensus, pushing the year-over-year increase to 6.3% — the largest since December 2022.
- Core PPI (excluding food, energy, and trade services) rose 0.5%, indicating inflation was broadening beyond the 20% surge in gasoline prices that paced the headline figure.
- Wall Street economists — including Barclays (0.35%) at the high and Oxford Economics (0.29%) at the low — forecast core PCE inflation of 0.32% for September, up from 0.25% in August and enough to lift the year-over-year rate to 3.1% from 3.01%.
- Fed futures priced just a 29% probability of a rate hike at the late-October meeting, but a 91% probability of at least one hike by December, reflecting conflicting signals between recent dovish Fedspeak and sticky data.
- Nationwide's Kathy Bostjancic said there are 'real risks' the Fed delivers another hike in two weeks despite tempered expectations for back-to-back increases, while Mizuho's Alex Pelle argued there is 'little reason for the Fed to hesitate to continue moving the policy rate higher.'
- Fed Chairman Kevin Warsh's stated litmus test for pausing hikes — confidence inflation will return in a timely manner to the 2% target — remains unmet: both headline and core PCE have run above target since 2021, inching higher since April 2025 tariffs and accelerating since the start of the Iran war.
Why it matters: With Wall Street projecting core PCE to accelerate to 3.1% year-over-year and Fed futures pricing 91% odds of at least one more rate hike by December, rate-sensitive borrowers face extended higher-for-longer conditions even as the October meeting odds sit at just 29% — a split that leaves traders positioned for a hawkish surprise barely two weeks out.
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