US inflation rose in September to 3.7% year-on-year, exceeding expectations (3.6%) and up from 3.4% in August. Core inflation (excluding food and energy) came in at 0.3% month-on-month, compared to expectations of 0.2%, and at 2.6% year-on-year, compared to expectations of 2.5%. The overall inflation rate came in at 0.6% month-on-month, in line with expectations. Following the release of the data, gold fell to $4,129.39, the dollar strengthened to 102.29, and the 10-year yield rose to 5.252%.

The figures (September 2026)

The overall index (annual): 3.7% compared to an estimate of 3.6% and a previous reading of 3.4%, which is 0.1 points higher than expectations and 0.3 points higher than August.

The overall index (monthly): 0.6% compared to an estimate of 0.6% and a previous 0.4%, i.e., in line with expectations.

Baseline (annual): 2.6% vs. estimate of 2.5% and previous 2.4%, 0.1 percentage point higher than expectations.

Baseline (monthly): 0.3% vs. estimate of 0.2% and previous 0.3%, 0.1 points higher than expectations.

Surprise: The annual and core headlines, in both their parts, exceeded expectations by 0.1 points, and the median of 14 entities was 3.6% for the year, which matches the highest core category in today's scenarios.

Energy and wages: renewed pressure on the consumer

Gasoline jumped 9.1% in September (compared to 3.9% in August), and energy 5.2% (compared to 2.1% in August), according to a report from the Bureau of Labor Statistics.

Real wages: The average real hourly wage declined by 0.5% on a monthly basis, meaning that monthly inflation (0.6%) outpaced nominal wage growth by about 0.5 points.

Energy's contribution to our calculation: Based on the relative weights of the August report (gasoline 3.77% and energy 7.35% of the basket), the rise in gasoline adds approximately 0.34 percentage points and energy approximately 0.38 points to the monthly index, which is more than half of the 0.6% increase (57%-64%), while the core 0.3% adds approximately 0.24 points. These figures are roughly consistent with the 0.6% reading.

Reading: The headline matches expectations monthly because energy is the driver, but the higher underlying is what worries the Fed, while lower real wages mean weak purchasing power that may show up in tomorrow's retail sales.

Check: We have not yet seen the text of the Bureau of Labor Statistics' September release (its page still shows the August release), and the three figures (9.1%, 5.2% and 0.5%) are as reported.

Market reaction (vs. pre-release levels)

Gold: $4,129.39, down about $14.5 (-0.35%) from $4,143.91, below support at $4,141.83, and about $5 away from the next support at $4,124.11.

Dollar Index: 102.29 (+0.26%) from 102.025.

Ten-year yield: 5.252% (+4.7 basis points) from 5.205%.

Reading: The movement of gold (around $3 per basis point) is lighter than the sensitivity of the past two weeks (5.6-8.9), and the yield and dollar are below the ranges of the hot basic scenario that we talked about this morning (yield 5.31%-5.36%, dollar 102.5-103.0, and gold 4,010-4,090), meaning that the initial reaction is lighter, and it may change with the opening of US stocks at 4:30 PM.

Formulation: The actions following the release do not, on their own, prove that they are due to it.

What does it mean for the Federal Reserve?

Before the release: about 19%-23% for an October rate hike and about 85% for a December rate hike, and about 90% probability that the 2027 interest rate will end at least half a percentage point higher, while Williams said yesterday that he sees one more hike this year and no hike in 2027.

Following the release: It was reported that traders are adding to their bets on three more interest rate hikes by the end of 2027, raising the range from 3.75%-4.00% to 4.50%-4.75%. We have not yet seen the new CME FedWatch readings to confirm these figures.

The baseline before the release (October 13, CME): approximately 23.8% probability of an October rate hike, approximately 89.8% probability of a December 9 hike, and approximately 93% probability that the rate will end in 2027 at least half a point higher. The most likely range in December 2027 is 4.50%-4.75% (approximately 31.7%), which is 75 basis points (three hikes) higher than the current level. This aligns with FXStreet's pricing of interest rate swaps for three hikes by mid-2027.

Williams’s plan: One increase this year and nothing in 2027 (interest rate 4.00%-4.25% at the end of 2027) carries only about 6.3% probability in the markets ahead of the release, while 8 out of 18 officials in September predicted an additional increase in 2027. That is, the baseline 0.3% widens the gap between Williams’ narrative and market pricing.

Next up: the Fed meeting on October 27-28, and tomorrow's producer price data and retail sales will be an additional test of the impact of rising fuel prices and falling real wages on spending.