September inflation unsurprising, Fed cuts to continue

Despite the ongoing government shutdown, the US Q3 inflation figures were deemed essential to produce since they are used as the basis for cost-of-living adjustments to several types of government benefit payments in 2026. As a result, some Bureau of Labor Statistics staff were temporarily recalled to work in order to collate and present the September data, though it has been released around a week and a half later than normal. As such, we only have a partial view of the regular inflation release and won’t see any further data until the shutdown ends. Notably, the data were collected in September (before the shutdown) so there is no methodological difference compared to other releases nor any reason to think that the quality of the data is impaired.

For the month of September, core inflation rose 0.2% month over month, slightly below the 0.3% seen in August and expected by consensus. Headline inflation landed at 0.3% month over month, slightly below the 0.4% from August and consensus forecasts. That puts both core and headline inflation at a 3.0% rate year over year through September 30.

Under the surface, tariffs are pushing goods prices higher, while services inflation in general has been stable. Goods categories that are most sensitive to tariffs are exhibiting the largest rate of increase, as they have since April and are expected to continue doing so until new tariffs fall out of the year-over-year calculation.

Implications for the Fed and Rate Cuts

Overall, this does not change the picture materially. With those figures each coming in slightly below forecasts, both we and the market continue to expect the FOMC to cut rates by 25 bps at each of its October and December meetings. In the market’s eyes, those cuts have around 100% chance of occurring—that was priced in both before and after the inflation data release.

We doubt that today’s data will prompt the Fed to cut by larger amounts. In the absence of any data suggesting that the labor market is collapsing and with inflation still well above target, we think they will continue to proceed gradually. Put simply, while inflation doesn’t appear to be accelerating, neither is it moving back toward target. That will keep the Fed cautious rather than aggressive as they move rates back toward their estimate of neutral, which is around 3.0%.

Investing involves risk, including loss of principal invested.  This information does not constitute an offer or solicitation and should not be relied upon as investment or financial advice or a recommendation of particular courses of action for all investors.  Equitable Advisors, LLC and its affiliates and associates do not guarantee the accuracy or completeness of any statements, statistics, data, opinions, forecasts, or predictions offered herein.