September Inflation Runs Hot: Markets Shaken as Eyes Turn to the Fed

September inflation, released on October 14, rattled markets. US consumer prices rose 0.6 percent in a month, lifting the annual rate from 3.4 to 3.7 percent against a consensus of 3.6. Gasoline was the engine: up 9.1 percent in a month, it carried more than half of the monthly increase on its own. According to the BLS report, the energy index rose 5.2 percent on the month and 20.4 percent over the year. As CNBC noted, when a single item drives the headline, everyone turns to the core reading.

The core reading offered no relief. Excluding food and energy, prices rose 0.3 percent on the month and 2.6 percent on the year, above expectations of 0.2 and 2.5. The problem is therefore not only the price at the pump; the body of the economy is heating too. Shelter rose 0.4 percent, and recreation, used cars, airline fares and medical care all moved up, while food was nearly flat. The pattern suggests broadening pressure rather than a one-off shock, which is exactly what rekindles the rate debate.

Attention now turns to the Fed meeting on October 27-28. Futures price roughly a 27 percent chance of a quarter-point hike there, up from about 20 percent before the data. The heavier bet sits on December: broker forecasts compiled by Reuters show most major banks expecting one more move at the final meeting of the year. Projections carried by Investing show 16 of 18 Fed officials seeing the year-end rate band above today's level. The band reached 3.75-4.00 percent in September; the question is whether the last step lands in October or December.

The hardest hit came in Korea. The benchmark index lost more than 7.5 percent in a day to close at 5,554, a seventh straight loss. Samsung fell about 9.5 percent and SK hynix more than 11 percent, losses so sharp the exchange first slowed program selling and then halted trading for 20 minutes with a circuit breaker. As reported by Yonhap (yna.co.kr), two chip giants make up nearly half the index, so fear about artificial intelligence hits Seoul harder than anywhere else. Foreign investors sold 3.6 trillion won in a single session.

Assuming everything must fall when rates rise is like assuming every car that brakes will crash. History breaks that rule: after 2016 the S&P 500 climbed while the Fed tightened, corrected, then climbed again, and recovered from its lows even as hikes continued into 2023. Gold tells a bolder story; it roughly doubled during one stretch of the post-2004 tightening cycle, drifted sideways through the sharp 2022 hikes, then surged once cuts began. The rate button alone does not set the direction; geopolitics and earnings expectations share the wheel.

The second engine of the selloff was fear of AI debt. Yields on cloud-computing firm CoreWeave's 2031 bonds shot into the 15-16 percent range while the stock first crashed more than 15 percent in a day and then slid another 6 percent. As Forbes pointed out, that level signals shaken confidence in a data-center model built on borrowing. With debt above 50 billion dollars set against a 35-39 billion dollar annual investment plan, the question sharpens: can enough revenue be generated to cover the borrowing?

The bond market did the opposite of fear. As anxiety grew, money ran for shelter: buying in long-dated US paper pushed the 10-year yield down to 5.08 percent, a three-week low. As Kitco reported, cash fleeing technology shares parked in Treasuries while the dollar index eased toward 102. Similar buying appeared across most countries except a handful. At least for now there is no funding squeeze; the market found room to breathe.

Gold and silver were knocked down first, then stood back up. After the data, gold slid toward 4,075 dollars and silver briefly cratered more than 5 percent; the next day gold recovered about 1 percent to 4,146 dollars and silver climbed back above 56. According to Kitco, falling yields and a softer dollar fueled the rebound. But the picture is fragile: producer prices jumped 1.3 percent on the month, the fastest since March 2022. The fire visible in consumer data burns on the producer side too, so metals could come under pressure again if rate bets climb.

Crypto is not taking on water yet, but it sails close to the waterline. Bitcoin holds the 81,000-83,000 dollar band, above its yearly average and well above the 200-day line near 72,000. The S&P 500 shows a compressed pattern resembling an inverted head and shoulders; it sits above its 200-day line and its confirmation gauge, though weaker, has not flipped negative. The chip giant seen as the barometer of artificial intelligence also holds above its 200-day line, yet the zigzags on its chart betray unease. Either an upward impulse or a downward panic will decide the direction.

In Turkey the film plays on a different screen. Borsa Istanbul slipped below its 200-day line with the fund crisis and stays there; upward attempts look feeble. According to a chronology published by the BBC, 131 funds were put into liquidation, more than 455,000 investors were affected, and an interim payment mechanism of up to 1 million lira per fund was set up. Hundreds of billions of lira flowed out of money-market funds in a month, raising corporate rollover costs. As reported by Bloomberg HT (bloomberght.com), the week of October 9 saw a first 30-billion-lira inflow, but the chain of trust is not repaired yet.