Futures markets are pricing the Federal Reserve's 28 October decision as a hold with near-certainty, even after headline consumer inflation rose 3.7% in September and beat consensus by 0.1pp.
The split in the data runs through the case facing the central bank. Core consumer price index inflation accelerated to 2.6% in September, also exceeding expectations, while the Fed's preferred personal consumption expenditures measure was softer than economists had expected.
Two weeks before the September data, the Fed raised its benchmark interest rate for the first time since 2023. The quarter-point move took its key rate to about 3.9%, and the central bank signalled that another increase could come later this year.
On the consumer side, the Conference Board's confidence index fell 6.7 points to 81.9 in September, from 88.6 in August. It was the survey's lowest reading since April 2014.
Dana Peterson, the Conference Board's chief economist, said consumers' view of current business conditions had turned negative for the first time since September 2024. The share describing conditions as bad rose above the share calling them good.
The Present Situation Index, which measures how people see the economy now, fell 7.9 points to 109.3.
Responses were collected from September 1-23, including the period of the Fed's rate increase. They were mostly pessimistic, with respondents frequently pointing to the cost of gas, goods and services. Inflation expectations rose during the survey period.
Oil and gas featured repeatedly in the write-in answers. Gasoline prices currently average $4.46 for a gallon of regular.
The inflation figures have offered less of a single direction. Costs rose 0.4% from July, four times the 0.1% increase registered in the previous month.
The Commerce Department said the PCE price index increased by 0.3 percent in August, after a revised 0.1 percent rise in July. Its annual growth rate was 3.4 percent in August, unchanged from a revised July reading.
Excluding food and energy, core PCE rose 0.2 percent in August after a revised 0.1 percent increase in July. The annual core PCE rate was 3%, below analysts' 3.3% expectation.
Fed officials have nonetheless publicly argued that inflation remains too high. John Williams said on 29 September that inflation was “unquestionably too high” at 3.7%, while Philip Jefferson said on 1 October that inflation had been too high for more than five years.
In remarks published on 12 October, Beth Hammack said current conditions required a restrictive policy stance. Michael Barr said further policy adjustments were likely to be needed to bring inflation back to target in a timely way.
Employment data add another signal for policymakers to weigh. ADP said private-sector employment rose by 90,000 jobs in September after a downwardly revised 36,000 increase in August.
Nela Richardson, ADP's chief economist, described the September report as strong, saying job creation had rebounded after a three-month slowdown and pay growth remained solid. Average hourly wages nevertheless rose 3.1% from a year earlier, the weakest year-over-year increase since May 2021.
For now, market positioning still favours a pause. The CME Group's FedWatch tool put the chance of rates staying at current levels at 62.9%, up from 49.1% on Tuesday.
The unresolved question for the Fed is how much weight it gives to hotter consumer-price readings against softer PCE inflation, weaker wage growth and falling consumer confidence. Its decision will test a market consensus that has become firmly positioned for unchanged rates.
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