Cool CPI Print Reaffirms Rate Cut Expectations

Yields briefly lower on soft CPI data. Treasury yields declined 4-6 bps in the immediate aftermath of CPI data that came in 0.1% below estimates across all readings. The move gradually reversed shortly after but edged lower again after University of Michigan consumer sentiment data fell to a five-month low as consumers continue to worry about persistently high prices. Yields ended the day nearly flat across the curve, with the 2-year yield at 3.48%, a 2 bp increase on the week, and the 10-year yield at 4%, a 1 bp decline on the week. Meanwhile, equities rallied today on the benign CPI print, with the S&P 500 hitting a new record high of 6,807.11 and the NASDAQ rising 1.15%.

September CPI data lands softer than expected. Headline and core CPI came in at 3.0% YoY, above August’s 2.9% level but below estimates of 3.1%. The small jump in core CPI was largely held down by one key housing cost measure, which recorded the slowest price increase since 2021. A decline in used car prices also contributed, though industries exposed to tariffs such as household furnishings, recreational goods, and apparel saw prices advance more quickly. Today’s CPI print released despite the government shutdown after the BLS called back employees to publish the data. CPI data is used by the Social Security Administration to calculate their cost of living adjustment, which is now set at 2.8% for 2026. However, a White House affiliated social media account stated “there will likely NOT be an inflation release next month for the first time in history,” though that remains to be seen.

US-Canada trade talks paused. President Trump paused trade negotiations with Canada today after the Ontario government funded an advertisement that played a clip of former President Reagan defending free trade and speaking against tariffs. In a social media post, Trump wrote, “Based on their egregious behavior, ALL TRADE NEGOTIATIONS WITH CANADA ARE HEREBY TERMINATED.” In response and in reference to recent trade talks, Canadian Prime Minister Mark Carney said, “We stand ready to pick up on that progress and build on that progress when Americans are ready to have those discussions.” Ontario Premier Doug Ford will be stopping the advertisement on Monday. With trade discussions paused, uncertainty looms in one of the largest trade relationships, that saw over $900 billion in goods and services exchanged last year.