Energy Costs Dominate September CPI, Weighs on Fed's Interest Rate Cycle

• September CPI came in hotter than anticipated, with headline month-over-month (M/M) at 0.6% and year-over-year (Y/Y) at 3.7%.
• Energy prices were the primary driver, with fuel oil up 15.3% M/M (74.2% Y/Y) and gasoline up 9.1% M/M (34.2% Y/Y).
• US equity futures dipped significantly, and Treasury yields rose, with the 10-year yield up about 8 basis points, making the October Fed meeting 'live' for a potential rate hike.

The September CPI report revealed higher-than-anticipated inflation, primarily driven by a significant surge in energy prices. This led to a swift negative reaction in US equity futures and a repricing of US Treasuries with higher yields, increasing the likelihood of a Fed rate hike in upcoming meetings despite previous dovish commentary from some Fed officials.