Hotter US Inflation Still Leaves 66% Odds of Fed Hold This Month; December Hike Favored

US consumer prices rose faster than expected in September, but financial markets still favor the Federal Reserve keeping interest rates unchanged this month. Expectations for another increase in December remain stronger, suggesting rate pressure could persist through year-end.

The US Bureau of Labor Statistics said on October 14 that the consumer price index rose 0.6% from a month earlier and 3.7% from a year earlier in September. Core CPI, which excludes food and energy, climbed 2.6% from a year earlier. Both the headline and core readings topped Dow Jones estimates of 3.6% and 2.5%, respectively.

Gasoline was the main driver of the increase. The gasoline price index jumped 9.1% from the previous month in September, accounting for more than half of the monthly gain in overall CPI. The annual CPI reading also accelerated to 3.7% in September from 3.4% in August.

Even so, markets still see a pause this month as the most likely outcome. Forbes reported that as of 2:45 p.m. Eastern Time on October 14, CME FedWatch showed roughly a 66% probability that the Federal Open Market Committee would leave rates unchanged at its October 27-28 meeting. The estimate is based on fed funds futures pricing.

A pause this month would not mean the tightening cycle is over. The Federal Reserve unanimously raised its benchmark rate by 0.25 percentage point at last month's FOMC meeting, setting the target range at 3.75% to 4.00%. That marked a shift away from the rate-cutting stance that began in September 2024. At the time, the Fed said the move was intended to bring inflation back to its 2% target more quickly.

The odds of another increase by year-end also remain elevated. The same FedWatch data cited by Forbes showed roughly a 63% chance of a 0.25 percentage-point hike in December. That means the door remains open to additional tightening even if rates are left unchanged this month.

That outlook could weigh on risk assets such as Bitcoin. Higher rates raise borrowing costs and make interest-bearing assets such as bonds more attractive. Forbes said that could reduce demand for investments in stocks and Bitcoin.