Investors and advisors are bracing for a pivotal inflation report this week, with the September Consumer Price Index (CPI) set to be released just days before the Federal Reserve's October 27-28 policy meeting. The data arrives on the heels of the central bank's first rate hike since July 2023, a move that was unanimous (12-0) and defied pressure from President Donald Trump for a cut. The upcoming CPI print could provide critical clues about the trajectory of interest rates heading into 2027.
Economists surveyed by Dow Jones Newswires and The Wall Street Journal expect headline CPI to rise 0.6% month-over-month in September, up from a 0.4% gain in August. On an annual basis, headline inflation is projected to accelerate to 3.6%, compared with 3.4% in August. The surge is largely attributed to a record jump in gasoline prices, which rose nearly 10% from August, according to Gene Goldman, chief investment officer at Cetera.
However, Goldman emphasizes that core CPI—which excludes food and energy—is the more critical metric. The consensus forecast calls for a 0.2% month-over-month increase, down from 0.3% in August, with the year-over-year rate ticking up slightly to 2.5% from 2.4%. "Energy is driving the headline," Goldman said. "I expect headline CPI to jump, but core inflation should be softer."
The Fed's own projections, released after the September meeting, show a committee that is far from unified on future rate moves. Minutes from the Federal Open Market Committee's September meeting, published last week, indicated that another hike is likely before the end of 2026, but the weaker-than-expected September jobs report has led some Fed watchers to question the likelihood of a hawkish decision in October.
According to the CME's FedWatch tool, the probability of a rate hike to the 4%-4.25% range at the October meeting stands at 23.8%, rising to 69.2% for December. The tool also shows a 20.6% chance of a December hike to 4.25%-4.5%. These probabilities are likely to shift dramatically based on Wednesday's CPI release.
Bob Edwards, chief investment officer at Edwards Asset Management, believes the CPI report could come in cooler than expected, potentially giving the Fed room to pause. "I'm leaning toward a September CPI report that comes in somewhat softer than consensus expectations, although elevated energy prices remain a concern," he said. "Weakening employment growth suggests underlying inflation pressures could begin moderating."
Clark Bellin, president and chief investment officer at Bellwether Wealth, cautions that inflation remains well above the Fed's 2% target. "Wednesday's CPI is likely to show elevated inflation thanks to rising energy prices," he said. "The bottom line is that inflation is still a problem for the central bank."
Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, added that the mediocre September jobs report isn't bad enough to shift the Fed's focus away from inflation. "Their next decision in late October is live," he said. "It will probably be swayed by the September CPI and PPI reports, geopolitical developments, and prices at the pump."
For advisors, the stakes are high. A soft core-inflation print could bolster the case for a pause, while a hot number would strengthen the hawks' argument. As Goldman noted, "When Fed voters are that split, each data point carries more weight." The outcome will shape the rate environment clients face in the coming months.
