‘Not a good omen for the Fed’: U.S. rate hike this month now seen as too close to call as inflation broadens across economy — SkimNews
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- Federal Reserve October rate decision shifted from expected pause to roughly 50/50 odds after CPI rose 3.7% year-over-year, well above the Fed's 2% target, with core CPI at 2.6% beating the 2.5% Reuters economist consensus.
- Software prices surged 28% year-over-year — the largest increase on record — while toy prices also notched record gains, cited by analysts as evidence of inflationary impulses from AI demand and Trump administration tariffs.
- Omair Sharif of Inflation Insights noted the surprise was not concentrated in one item like August's wireless spike but reflected 'broad-based' strength across multiple components, a pattern Fed officials have flagged as a trigger for further tightening.
- Rate futures reversed from heavy bets against a second straight hike under Chair Kevin Warsh to pricing the October move at around even odds, placing the outcome in 'unusual uncertainty' territory for a decision just two weeks out.
- Raymond James Chief Economist Eugenio Aleman wrote the broad-based inflation reading 'would raise the probability' of a hike at the October FOMC meeting, calling it 'not a good omen for the Fed.'
- PPHC Chief Economist Martin Beck countered that weaker jobs data and fragile consumer sentiment still leave the Fed 'room to hold in October,' even as core inflation stays sticky at 2.6%.
Why it matters: A rate hike one week before the November elections would land directly on a politically sensitive Fed decision, with traders having moved from pricing a pause to 50/50 odds after CPI's broad-based acceleration. Chair Kevin Warsh faces a binary choice: act on entrenched inflation now or hold and risk credibility if core CPI keeps drifting away from the 2% target.
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