Much-awaited September CPI comes in above Fed target, below forecasts

The latest Consumer Price Index report from the Bureau of Labor Statistics showed US inflation rose by 0.3% in September, a touch below economists’ expectations and offering some reassurance to markets and policymakers ahead of the Federal Reserve’s upcoming rate decision.

The annual inflation rate reached 3.0%, up slightly from August’s 2.9%, but still below the 3.1% consensus forecast among economists surveyed by both The Wall Street Journal and Dow Jones.

The Friday data release shows core inflation, which strips out the more volatile food and energy components, also registered a 3.0% year-over-year increase, marking a modest deceleration from August’s 3.1% pace. On a monthly basis, core CPI rose 0.2%, compared to expectations for a 0.3% gain.

Major stock indices hit new all-time intraday highs following the news, with the Dow Jones Industrial average jumping 514 points to gain 1.1%. The S&P 500 added 1%, and the Nasdaq climbed 1.3%.

The largest among the drivers of September’s price gains was a 4.1% jump in gasoline, which helped push the broader energy index up 1.5% for the month. Food prices rose 0.2%, with groceries up 0.3% and restaurant meals climbing 0.1%.

Shelter costs, which make up about one-third of the CPI, increased 0.2% in September and were up 3.6% from a year ago. Meanwhile, prices for used cars and trucks fell 0.4%, and motor vehicle insurance also declined.

The release of the CPI data comes at a time when most other government economic reports have been suspended due to a funding lapse in Washington amid a historically long government shutdown. The Bureau of Labor Statistics completed the September CPI collection before the shutdown, in part to provide the Social Security Administration with the data needed to calculate cost-of-living adjustments for benefit payments.

For the Federal Reserve, the September inflation reading is the final major data point before its policy meeting next week. The central bank, which targets a 2% inflation rate, is widely expected to cut its benchmark interest rate by a quarter percentage point, with markets pricing in a near-certainty of a move. However, policymakers remain divided over the pace and extent of future cuts, balancing persistent inflation pressures against signs of a weakening labor market.

Stephen Miran, the contentious Fed governor pick nominated by President Donald Trump, has gone on the record pushing for a way out-of-consensus 50-basis interest rate cut during last month's Fed policy meeting, where the FOMC decided on a 25-basis point reduction.

For Josh Jamner, senior investment strategy analyst at ClearBridge Investments, the September data "locks in a rate cut at the Fed's meeting next week."

He pointed to signs of tariff-induced inflation across select categories, but nevertheless noted that the slower pace of goods inflation broadly compared to the August reading suggests "the pass-through of higher tariffs to consumers has continued to undershoot expectations."

LPL's Chief Economist Jeffrey Roach drew a connection to the Beige Book, which showed some firms under tariff cost pressure have kept selling pricess largely unchanged – in other words, eating the costs – to maintain market share and in response to pushback from price-sensitive customers.

"Inflation metrics will likely improve by December, setting the Fed up to continue easing throughout 2026," Roach said.

Brad Conger, chief investment officer at Hirtle Callaghan, noted that the core CPI figure was “expected at 0.3%, but came in slightly weaker.” He added that while tariffs had been expected to push prices higher, “the underlying trend of dis-inflation will tend to reassert itself gradually,” citing ongoing weakness in the labor market and continued pressure on housing services.

Chris Zaccarelli, chief investment officer for Northlight Asset Management, observed that inflation “is the dog that didn’t bark,” with many investors having positioned for a sharper rise in prices.

“With the Fed cutting rates – and this report does nothing to stop them from a 25-bps cut next week – and corporate profits continuing to increase, it’s hard to see an interruption of this year’s bull market,” he said.