October Hike Odds Top 40% as Core Inflation Runs Hot
September inflation came in hotter than expected, and the Fed's October meeting is back in play. Consumer prices rose 3.7% from a year earlier, the Labor Department said at 8:30 a.m. ET (3:30 p.m. in Istanbul), up from 3.4% in August. The 0.6% monthly gain matched forecasts.
The surprise came from core inflation. Prices excluding food and energy rose 0.3% on the month and 2.6% on the year, against forecasts of 0.2% and 2.5%. Gasoline, up 9.1% on the month, drove most of the headline jump; shelter rose 0.4% and airfares 1.2%.
The market did not read this as a gasoline story; it read it as a rates story. Per Reuters, futures lifted the odds of a hike at the October 27-28 meeting to 40% from 22% before the data. ForexLive's estimate is 47%; the policy rate has been 3.75%-4.00% since September's hike.
Bonds reacted first. The 10-year Treasury yield rose about 9 basis points to 5.31%, and the 5-year yield climbed to 5.12%. Futures that were higher before the data turned negative, with the rate-sensitive Nasdaq 100 falling the most.
On the second day of earnings season, the banks diverged. Bank of America earned $0.91 a share in the third quarter, hit by a $1.2B anti-money-laundering penalty imposed by regulators a day earlier. Excluding the penalty, EPS was $1.08 versus a $1.10 forecast.
Revenue of $30.1B fell short of the roughly $30.7B expected. Net interest income rose 8% to $16.4B. The stock fell more than 5% in premarket trading.