MediumIV Macro Policy & Sovereign Debt5 October 2026, Monday · 17:00 TRT (UTC+3)
US services prices climb at fastest pace since 2022
The ISM services PMI for September, released on 5 October, eased from 55.4 to 54.9 but stayed in expansion territory. The prices paid index rose 1.4 points to 74.0, its highest reading since July 2022.
According to the ISM report, the business activity index fell 5.2 points to 56.5 and new orders dropped 1.1 points to 59.8. The employment index rose 2.3 points to 50.1, edging out of contraction. Thirteen industries reported growth and four reported contraction. The prices index has been above 70 in six of the past seven months and above 60 for 22 consecutive months.
The chair of the ISM services survey said tariffs and fuel costs were the issues weighing most heavily on respondents' supply chains. Fuel costs were cited twice as often as any other problem. That points to energy prices, driven higher by the Iran war, feeding through from goods into services. Consensus estimates compiled by Verified Investing had the prices index at 72.9.
The data sharpens the Fed's policy dilemma ahead of its 27–28 October meeting. September payrolls, released on 2 October, rose by only 29,000. According to Trading Economics, futures markets price roughly a 78% probability that rates stay on hold in October. Prices accelerating while demand cools makes it harder for the Fed to drop its restrictive stance despite soft employment data.
Talay assessment
Bottom line
Services prices at 74.0, a high of more than four years, make the risk of the energy shock seeping from headline into core inflation concrete. Fuel costs topping the list of complaints suggest the pressure will persist while oil stays expensive. Weak hiring buys the Fed time, but the price data pushes back any debate on cuts. A hold in October is the most likely path.
Likely effects
- Fed policyNegativeWeeks
Prices accelerating as demand slows keeps the Fed in wait-and-see mode. The case for a rate cut stays weak at least until the 14 October CPI release.
- US Treasury yieldsNegativeWeeks
Faster services inflation keeps an inflation premium alive at the far end of the curve and supports the US 10-year yield staying elevated.
- Türkiye and emerging marketsNegative1–6 months
A Fed that stays tight for longer supports the dollar and keeps borrowing costs high for economies reliant on external financing, such as Türkiye.
Possibilities, ranked
- 1Fed holds in October65%
Weak hiring and high prices offset each other. The Fed stays on hold on 28 October and keeps its hawkish language.
Watch: FOMC minutes due on 7 October and September CPI on 14 October
- 2Price pressure revives a hike25%
CPI confirms the acceleration in services prices, and the Fed raises rates again in October or December.
Watch: A month-on-month acceleration in September core CPI
- 3Demand cracks, price pressure fades10%
The drop in new orders deepens, energy prices fall back and the prices index slips below 70.
Watch: October ISM services prices index falling below 70
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- ISM services prices index▼ 74.0
- ISM services PMI▼ 54.9
- ISM services employment▲ 50.1