Rate-Hike Odds, Bond Yields Explode Higher After Hotter-Than-Expected CPI

Expectations were for a hot headline and cool core heading into this morning's most-watched macro signal from CPI with the October FOMC decision on the line. FedSpeak has clearly pushed the market to back away from a hawkish view, today's data may force a change.

Headline CPI did indeed come hot in September - but as expected - at +0.6% MoM, which pulls it up 3.7% YoY (hotter than the 3.6% YoY exp)...

Core CPI also printed hotter than expected, up 0.3% MoM (+0.2% MoM exp). That has pulled Core CPI up 2.6% YoY (above the expected 2.5%)...

Services was the big driver of Core's jump...

Both Goods and Services price gains accelerated in September...

But it was Energy that was the biggest driver of the jump...

With Fuel Oil (Diesel) prices exploding higher...

And that is only going to get worse!

Finally, expectations were for some modest volatility today relative to the last few CPI days...

...but the dismally low volume/liquidity of the last couple of days may exaggerate any move.

Rate-hike odds have soared to 50% for October...

...and 2Y yields are spiking...

Christopher Hodge at Natixis confirms that these numbers put October in play:

“We had said that anything near consensus would not likely shift the narrative for the Fed for October, but this is far enough from consensus to make it a debate. We still think the Fed does not ultimately go – the arguments laid out by Williams and Jefferson suggests that there is no rush to tighten again right now, but today at least gives the hawks more ammo at the meeting.”

The bottom line is that this print signals reasonably broad-based price pressures too (not just energy). Prices for recreation, used cars and trucks, education, airline fares, medical care, and apparel all increased. Some of that may be tariffs and the energy story, but some of it also suggest sticky inflation.

And that is what Warsh and his pals fear most... you can't "look through" that!