HighIV Macro Policy & Sovereign Debt30 September 2026, Wednesday · 15:30 TRT (UTC+3)

Softer US inflation erodes the odds of an October rate rise

The US PCE price index for August rose 3.4% year on year, against a forecast of 3.7%. Core PCE held at 3.0%. According to CME FedWatch, the probability of an October rate rise fell from 51% to 35% in a single day.

Location: WASHINGTON

According to data released by the US Bureau of Economic Analysis (BEA) on 30 September, the PCE price index rose 0.3% month on month and 3.4% year on year in August. The index tracks personal consumption expenditure prices and is the Fed's preferred gauge. The core index, excluding food and energy, rose 0.2% on the month and 3.0% on the year. According to Financial News, markets had expected 3.7% for the headline rate and 3.3% for the core. Consumer spending rose strongly, by 0.9% on the month, and the saving rate fell to 4.1%.

Energy remains the source of price pressure. According to the components reported by Financial News, petrol prices rose 4.4% on the month and transport services 1.4%. CME FedWatch data reported by Asia Business Daily show the probability of a 25 basis point rise at the 28 October meeting fell from 51% the day before the release to 35%; Financial News put it at about 37%. The 2-year yield fell 4 basis points after the data to about 4.84%.

The relief in bonds did not last until the close. According to Asia Business Daily, the 10-year yield fell to about 5.23% in morning trading. Yahoo Finance, however, wrote that the 10-year yield closed 4 basis points higher at 5.29%. According to the same source, the Dow Jones closed down 0.9% and the S&P 500 down 0.3%; the Dow ended September with a loss of 4.9%.

Talay assessment

Bottom line

Inflation coming in 0.3 points below forecast weakened the case for a Fed rate rise in October, but did not remove it. The 10-year yield's return to 5.29% by the close shows the pressure stems more from the term premium than from policy expectations. While energy components keep rising, the relief will remain fragile.

Likely effects

Fed policyPositiveWeeks
With the odds of an October rise down to 35%, the Fed gains room to wait, and its decision becomes more dependent on the jobs data.
Bond yieldsNegative1–6 months
The 10-year yield closing at 5.29% shows that a softer inflation print was not enough to bring down the term premium.
TürkiyeUncertainWeeks
Lower odds of a Fed rise could ease pressure from the dollar, but high US 10-year rates keep borrowing costs elevated for emerging economies.

Possibilities, ranked

1
Fed waits in October55%
Jobs data come in moderate, and the Fed holds rates on 28 October while leaving the door open for December.
Watch: September non-farm payrolls and the FedWatch probability for October staying below 30%
2
Rise priced back in30%
Energy prices and strong spending push the odds of a rise back above 50%.
Watch: The monthly rise in petrol prices in September CPI and comments from Fed officials
3
Yields fall markedly15%
The slowdown in inflation proves durable and the 10-year yield falls below 5%.
Watch: The 10-year yield closing below 5.1% for 3 days in a row

Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.

Market reaction

Indicators affected

Annual PCE (forecast 3.7%)▲ 3.4%
October rate rise probability▲ 51% → 35%
US 10-year yield (close)▼ 5.29%

Historical context