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What happened
Citi Research economists Andrew Hollenhorst and Veronica Clark argued in a September 28 report that the Fed’s October rate decision now hinges on September core CPI — not the jobs report and not Wednesday’s PCE release. The Fed’s reaction function, they say, has become more sensitive to spot inflation and energy prices.
Citi forecasts roughly 85,000 September nonfarm payrolls, with unemployment edging from 4.1% to 4.2% — not enough to shift hike pricing. Only extreme outcomes, such as negative payrolls or 4.3% unemployment, would force a reassessment. Wednesday’s August core PCE may show a downward revision, but it is already priced in.
Markets price greater than 70% odds of a hike at the October 28 meeting (CME FedWatch), up from about 55% a week ago. Fed Chair Warsh said inflation “ran too hot for too long.” The 10-year Treasury yield touched 5.27% Monday, its highest since June 2007.
Key figures:
- October hike odds above 70% (up from ~55% a week ago)
- 10-year yield 5.27%, highest since June 2007
- Citi payroll forecast: ~85K; unemployment 4.1% to 4.2%
- Core PCE due Wednesday Sept 30, payrolls Friday Oct 2, CPI mid-October
Why it matters
The regime shift is the story: if the Fed now reacts to realized inflation more than to labor-market softness, rate cuts are off the table and hikes are live. Bond markets have already voted — a 5.27% 10-year is the highest in nearly two decades (Related reading: Fed officials line up behind another rate hike).
For equities, the mid-October CPI print now carries binary risk: a hot core number likely locks in the October 28 hike, while a soft one reopens the debate.
What to watch
Wednesday’s core PCE (September 30) is a non-event under Citi’s framework; Friday’s payrolls (October 2) only matter at extremes. The real catalyst is September core CPI in mid-October — and then the October 28 FOMC decision itself.
Auto-posted by the Bull Lounge news desk.
Not financial advice.Citi says only CPI matters now — do you agree, or could a soft jobs report still derail the October hike?
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