Economists Expect September CPI at 3.6% as Gas Hits $4.34 and Fed Weighs Another Rate Hike

Since the Federal Reserve raised interest rates in September for the first time in more than three years, the question hanging over Wall Street has been whether inflation is cooling or heating back up. The September consumer price index, due Wednesday morning, Oct. 14, is the next hard data point.

Economists polled by Dow Jones expect CPI to show annual inflation of 3.6%, up from 3.4% in August. The Cleveland Fed's inflation nowcasting model points to the same 3.6% annual rate, with a monthly jump of 0.5%. The model has core inflation, which strips out food and energy, holding at 2.4% over 12 months.

These are forecasts, not results. U.S. stock futures were little changed Tuesday night and edged slightly higher early Wednesday, with S&P 500 futures up 0.14% and Nasdaq-100 futures flat.

Gasoline is the obvious pressure point

Gasoline averages $4.34 a gallon, according to AAA, compared with $3.08 a year earlier.

Tuesday's oil settlements stayed high. West Texas Intermediate closed at $94.14 a barrel, its highest finish since late September, while Brent settled at $105.69.

Last week President Trump announced a temporary easing of restrictions on Russian diesel fuel exports. Analysts do not expect the deal to do much to lower fuel prices for truckers and farmers.

The Middle East is not helping. Commerzbank Research's Carsten Fritsch said a conflict between Saudi Arabia and Iran-backed Houthi rebels in Yemen threatens to escalate after rebel attacks on the airport in the Saudi capital. He also said transit through the Strait of Hormuz carries the risk of Iranian attacks on ships, "something that has been happening with increasing frequency recently."

The Institute for the Study of War said Tuesday that Iran appears to be targeting vessels conducting ship-to-ship oil transfers in and near the strait. Mohsen Rezaei, secretary of Iran's Supreme National Security Council, told state TV on Oct. 10 that Iranian forces were striking an average of five "smuggling ships" every night. At a rally in Alaska on Tuesday, Trump said the U.S. has "had it" with Iran.

The Fed's next move

The last official inflation reading came in softer than expected. August's personal consumption expenditures price index, the Fed's preferred gauge, held at 3.4% annually against a consensus of 3.7%, the Bureau of Economic Analysis said Sept. 30. July was revised down to 3.4% from 3.7%. The core PCE index, which excludes food and energy, was flat at 3%, also well below expectations.

Chris Zaccarelli, chief investment officer at Northlight Asset Management, said that data suggested the Fed was probably right to raise rates, and that policymakers might be able to skip a meeting or raise less than the three consecutive hikes many had feared.

Williams was more direct Tuesday. The New York Fed president said one more hike this year may be appropriate and left open further increases in 2027. The thing he is watching closest, he said, is artificial-intelligence-driven demand. He said he does not see other emerging sources of inflationary pressure.

Commonwealth Bank of Australia's Carol Kong said the CPI report "could influence market pricing for the timing of the Fed's next increase." Her stated risk is that core CPI surprises to the upside on strong consumer demand and higher costs, which would push up market pricing of an October hike and lift the dollar. That sits against the Cleveland Fed model's forecast of a steady 2.4% core rate.

Chips and banks on deck

Beyond the CPI report, earnings are the other driver. The VanEck Semiconductor ETF (SMH) fell for a sixth straight session Tuesday amid fears of an AI spending bubble and worries about Chinese competition. Both the S&P 500 and Nasdaq dropped for a second straight session.

FactSet data shows S&P 500 companies are expected to post blended third-quarter earnings growth of roughly 30%, with semiconductors and equipment makers expected to grow 130%. Marta Norton, chief investment strategist at Empower, said the demand side of the chip story is "very hard to argue with." Her doubt is about price: "we question how much valuation is left in the space."

ASML said Wednesday that some customers are expressing interest in placing orders for its lithography tools for 2029 and 2030, and that third-quarter profit beat expectations.

Big banks posted strong quarterly results Tuesday, yet Goldman Sachs and Citigroup shares still ended lower.

Bank of America shares fell more than 2% in extended trading after the bank was hit with more than $1.2 billion in federal penalties. Regulators said the bank failed to report more than $5 billion in suspicious transactions. Bank of America and Morgan Stanley report results Wednesday morning.

The next marker after CPI is Friday, when Fed Chair Kevin Warsh is scheduled to speak. Whether the Fed hikes again in October or waits will depend in part on whether the September number lands at 3.6% or above it.