Newly released US data shows that the Consumer Price Index (CPI) rose 3.7% year-on-year in September, below the forecast of 3.6% and the previous reading of 3.4%. The CPI rose 0.6% month-on-month in September, in line with the forecast. The core CPI rose 2.6% year-on-year in September, below the forecast of 2.5% and the previous reading of 2.4%. The core CPI rose 0.3% month-on-month in September, below the forecast of 0.2% and the previous reading of 0.3%. Following the data release, traders increased their bets on a Federal Reserve rate hike in October, and also predicted three more rate hikes by the end of 2027. As a result, the US dollar index rose by about 0.3% overnight to 102.94, a new high since April 2025. San Francisco Fed President Daly said in an interview on Wednesday (October 14) that the Fed may need to raise interest rates further to curb inflation, but she hinted that there was no need to take action at the October 27-28 meeting.

Key assessment: Further interest rate hikes may be needed, but action in October is not urgent.

Daly made it clear that the Federal Reserve may need to raise interest rates further to curb inflation, but she hinted that there was no need to act at the October 27-28 meeting. She stated that further adjustments were more likely than no adjustments, but she was still weighing the timing. She said she didn't feel any urgency and didn't want to rush into decisions based on limited information, believing the Fed had ample time. In her view, it would be unwise to react hastily when there is time to make a good decision. At the heart of this assessment is that Daly agrees the Fed may need further tightening, but she believes October action would be premature. This statement contrasts with market pricing in an October rate hike—market expectations rose after the CPI data release, while Daly's comments indicated she preferred to wait. Her statement was the clearest rebuttal to the jump in pricing in an October rate hike.

Inflation assessment: Gasoline drives overall growth, core inflation remains sticky.

Daly's comments were released on the same day as the September CPI data was published. The data showed inflation at 3.7% year-on-year, higher than expected and well above the Fed's 2% target. Daly stated that these figures indicate gasoline prices are driving overall inflation, while core inflation, excluding volatile food and energy prices, remains sticky, in line with her expectations. She said it is unclear whether inflation will ease as the recent shock subsides or worsen as the shock persists. Daly stated that the risk of inflation remaining persistently above target remains high. She added that a stable labor market means the Fed can focus on price stability. At the heart of this assessment is that the rise in overall inflation is primarily driven by gasoline, while the stickiness of core inflation is what the Fed is focusing on. If core inflation persists, the Fed may need to tighten further; if core inflation eases, it may support waiting.

Market reaction: The calming of market sentiment after the CPI is a positive sign.

Daly stated that she was pleased with the market's calm after the initial strong reaction following the CPI report, believing that investors understood how the Federal Reserve would respond. This statement is noteworthy—it indicates that Daly believes market pricing is not out of control and that the Fed's communication framework is still functioning effectively.

Federal Reserve internal stance: the differences between Daly and Goolsby

Daly's remarks helped clarify policymakers' stance ahead of this month's meeting. Earlier Wednesday, Chicago Fed President Goolsby called the CPI data disappointing, noting continued inflation in the services sector. The Fed's Beige Book survey showed that price pressures intensified in some regions, increasingly driven by diesel costs. Following the CPI data release, market expectations for an October rate hike rose, while Daly's comments suggested she was inclined to wait. Daly's remarks contrasted with Goolsby's more anxious tone, reminding market officials that while they were aligned on direction, they differed on timing.

Policy path: December is a more likely timeframe

The Federal Reserve raised its target range for the US dollar by 25 basis points to 3.75% to 4% in September and indicated that it would raise rates once more this year. Most officials pointed to December, rather than October, as a more likely timeframe, a view consistent with Daly's comments. This means that the October meeting is likely to remain on hold, with December being the more probable time for the next move. For the market, Daly's remarks will alleviate some pressure on front-end Treasury yields while anchoring long-term yields to expectations of "higher and longer" rates. Oil prices are a key swing factor—a further surge in crude oil prices will test Daly's view that the Fed can wait.

Summarize

Daly indicated that the Fed may need to raise interest rates further, but an October action is not urgent. Her statement was the clearest response to the jump in pricing in an October rate hike following the CPI data release, and is expected to reduce the probability of action on October 27-28 without damaging expectations of a December rate hike. This combination will alleviate some pressure on front-end Treasury yields while anchoring long-term yields to expectations of "higher and longer." Daly directly linked overall inflation to gasoline prices, making oil prices a key swing factor—a further surge in crude oil prices due to the Iranian conflict would test her view that the Fed can wait. Her statement contrasts with Goolsby's more anxious tone, reminding market officials that while they are aligned on direction, they disagree on timing. December is the more likely time for the next action, with the October meeting likely to remain on hold. At 7:18 AM Beijing time on October 15, the US dollar index was at 102.35.