A long-awaited update on US inflation may send markets scrambling to revise Fed rate cut bets.
- US CPI inflation data will be released despite the ongoing government shutdown
- Financial markets and Fed officials remain far apart on 2026 rate cut expectations
- Stocks and gold prices may fall as the US dollar rises if CPI forces a hawkish pivot
For three weeks now, top tier US economic data has been off the menu traders. A government shutdown triggered amid a Congressional budget impasse has mostly shuttered the agencies producing the statistics that markets want to see. Now, a special dispensation has been made for the consumer price index (CPI) report.
The Trump administration recalled some furloughed staff at the Bureau of Labor Statistics (BLS) to compile a September CPI update. That is because numbers from July, August, and September are used as the benchmark for the annual cost-of-living adjustment (COLA) for social security payments.
All eyes on US CPI data
The data is expected to show that headline price growth hit a 16-month high at 3.1% year-on-year. The core CPI measure excluding volatile food and energy prices is likewise expected at 3.1%, matching the five-month high set in July and repeated in August.
The release will mark the first real test of September’s monetary policy steering from the Federal Reserve. The central bank issued a 25-basis-point (bps) rate cut and policymakers’ projections were updated to set the stage for two more of them this year. A further 25bps reduction was penciled for the whole of 2026.
The markets have embraced the first part of that guidance and rebelled against the second. The outlook priced into Fed Funds futures contracts shows traders are all but certain that a 25bps rate cut will appear at next week’s Federal Open Market Committee (FOMC) meeting, and that this will happen again on December 10.
Stocks may fall if US inflation overshoots
As for 2026, traders are betting on 68bps in further easing. That amounts to at least two standard-sized rate cuts and a 72% probability of a third one. The government shutdown has delayed testing this disparity against evidence that might show which side is closer to the mark. Markets may scramble to reposition if CPI appears hotter than expected.
There are reasons to worry. Tariffs deployed by the Trump administration continue to absorb into price levels. Tellingly, core goods inflation hit a two-year high in August. Service sector price growth cooled in July and August, but survey data from the Institute of Supply Management (ISM) foreshadows a dramatic incline on the way.
Stock markets may swoon while the US dollar rises if signs of escalating inflation pressure force repricing down rate cut expectations through next year. Borrowing costs may rise at the front end of the Treasury yield curve but could be better anchored at the long end as cuts are pushed further into the future. Gold and bitcoin are likely to suffer.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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