Google Trends: How US inflation data is shaping the Fed’s next interest rate move
Hot inflation has given the Fed’s hawks fresh ammunition, but weak hiring pulls the other way, so a pause is still the base case, though by a narrower margin, and the next few data points will decide how much.
Google Trends shows rising interest among investors searching for US CPI data and a US Fed rate hike. After all, rising inflation will keep interest rates higher for longer. That is bad news for businesses, corporates and equity investors alike. Investors have good reason to worry about rising inflation. After all, the US Fed must keep prices and jobs in balance at the same time, but so far neither is moving in its favour.
Fresh CPI and PPI readings have left the Federal Reserve in a tight spot. A weakening job market argues for caution, while stubborn price pressures say the fight against inflation isn’t over. Last month, the Fed raised rates by 25 basis points to the 3.75%-4.00% range. Markets also expected roughly 79 basis points of tightening by late 2027, per CME Group's FedWatch Tool. But that reading came before the latest inflation data.
September's CPI report shows inflation running hotter. Producer prices have now jumped even more sharply. So, is a rate hike back on the table? First, we look at how hot inflation is. The CPI rose 0.6% on the month after climbing 0.4% in August. That was in line with economists' expectations. On a yearly basis, inflation rose to 3.7% from 3.4%, above the market forecast of 3.6%. The energy index alone rose 5.2% on the month and 20.4% over the year.
Core CPI, which excludes food and energy, rose 0.3% in September, matching August. Over the year, core inflation stood at 2.6%, up from 2.4%. Did producer prices just raise the stakes? Producer prices in the US soared 1.3% from the previous month in September 2026. That is the sharpest rise since the start of the Russian invasion of Ukraine in March 2022. It is also the second highest increase on record.
Energy was the main driver. Costs for US producers gained 10.8% on the month. The global energy shock from the war in the Middle East played a role. So did tight diesel markets amid outages at Russian refineries. Core producer prices, which exclude food and energy, rose 0.7%. Expectations were 0.3%, and August's gain was 0.2%. It was the biggest gain since April. What could still flip the script? What do FedWatch odds say now?
After the release of PPI data on Thursday, the CME FedWatch Tool shows a 66.2% probability of a rate pause at the October 27-28 meeting. Earlier this month, the odds of a hike were near 18%, which has risen to 33.8% now. The street is still not overwhelmingly decided on a consensus. After the CPI data, Wall Street fell, the dollar advanced, and Treasury yields rose. The dollar index traded around 102.65, while gold and silver came under pressure.
What are rate hike expectations after inflation's rise? There is no clear consensus on the Street yet, and the next few data points could tip it. Hotter inflation has not rewritten the near-term script yet. Most economists still expect a pause in October and a hike in December. That puts the spotlight on the next few weeks of data. The minutes of the September meeting released earlier this month explain why.
Most participants said another increase would likely be appropriate by year-end. But they kept an open mind. Future decisions, they said, depend on incoming data. The Fed staff also see risks to inflation tilted to the upside. They expect inflation to reach 2% only in 2029. Fed Chair Kevin Warsh has often said inflation is his first priority. Yet he has said little on where rates go next. So, what could hold the Fed back?
Jobs data. The US economy added just 29,000 jobs in September, well below forecasts of 90,000. The unemployment rate rose to 4.2%. If hiring weakens further and inflation stabilises, a December hike may lose steam. But hot CPI and PPI readings make that a tougher ask. What should investors watch next? Economists see September core PCE rising 0.3% to 0.4% on the month. That would put the yearly reading at 3.1%, up from 3.0% in August.
Reuters noted that producer price data could shift those estimates. The PCE report arrives on October 29, a day after the FOMC meeting ends on October 28. That means the Fed will not see it before deciding. The US midterm elections are the other key event. Bottom line Inflation has handed the hawks fresh ammunition. Weak job hiring is the Fed's counterweight. A pause is still the base case, but the margin has narrowed.
The next few data points will decide how much. Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a registered financial advisor. Financial Express is not responsible for any decisions made based on this information.
