Futures edge higher on CPI morning as forecasters brace for a 3.6% headline and a soft core

The most important number of the week arrives before most investors have finished their coffee. The Labor Department's consumer price index for September is due at 8:30 a.m. Eastern, and it is the last major inflation reading the Federal Reserve will see before it meets on October 27 and 28.

Stock futures were calm going into it. As of early-morning snapshots, Dow Jones Industrial Average futures were up roughly 0.2% to 0.3%, or about 120 to 150 points, according to Investing.com. S&P 500 futures were up about 0.2%. Nasdaq 100 futures were close to flat, after paring earlier gains when Dutch chip-equipment maker ASML reported results, according to XTB.

Where Tuesday left things

Tuesday's session ended almost exactly where it began. The S&P 500 slipped 1.79 points to 7,805.45. The Dow fell 180.45 points, or 0.35%, to 51,670.10, and the Nasdaq Composite lost 41.52 points, or 0.15%, to 27,204.38. Bank stocks did most of the damage to the Dow after the first four big lenders reported, while chipmakers recovered most of an early slide.

What the forecasters expect

The consensus describes two different reports bundled into one release. The headline number, which includes food and energy, is expected to jump. The core number, which strips those out, is expected to cool.

• Headline CPI: a 0.6% rise from August, up from 0.4% the month before. That would lift the annual rate to 3.6% from 3.4%, according to forecasts compiled by The Wall Street Journal and Investing.com. Higher gasoline prices are the main driver.
• Core CPI: about 0.2% on the month, slower than August's 0.3%. On an annual basis, forecasters are split almost evenly between 2.4% and 2.5%, according to a Wall Street Journal survey of 14 forecasters summarized by InvestingLive.
• The range on core: Citigroup expects a 0.18% monthly rise, while Morgan Stanley expects 0.24%, according to InvestingLive and BlockBeats. Morgan Stanley sees the bigger risk as a 0.3% reading, while Citi sees the bigger risk as 0.1%.

That gap is small in absolute terms, but it is the part of the report the Fed is most likely to focus on. Energy-driven jumps in the headline rate can fade as quickly as they arrive. A firm core reading would suggest price pressure is spreading.

How the rate market is positioned

The Fed raised its benchmark rate by a quarter point in September. Since then, officials have sounded less urgent about a follow-up move. New York Fed President John Williams said this week that one more hike may still be appropriate this year, but that further increases in 2027 are unlikely to be needed. Governor Christopher Waller noted that high long-term Treasury yields are already tightening financial conditions in rate-sensitive areas such as housing and autos.

Money markets now price about a 77% to 78% chance that the Fed leaves rates unchanged this month, according to LSEG data cited by MarketWatch and a separate estimate from Today Markets. Pricing for a hike in December remains above 85%.

The 10-year Treasury yield traded between about 5.20% and 5.23% overnight, depending on the source, after ending Tuesday at its lowest level since late September. The 2-year yield was near 4.78% to 4.81%.

Oil is pulling the other way

Energy prices are the reason the headline forecast is so high, and they rose again overnight. Brent crude traded around $106 to $107 a barrel early Wednesday, up roughly 0.6% to 1.3% depending on the snapshot, after a Houthi attack hit an administrative building belonging to Saudi Aramco in the eastern city of Dhahran. Reports of two more vessels struck near the Strait of Hormuz added to the risk premium. US crude traded near $95.

Gold moved the other way, slipping about 0.3% to around $4,150 an ounce in spot trading. Higher-rate expectations make gold, which pays no interest, less attractive to hold.

The rest of the morning

Earnings season continues alongside the data. Bank of America and Morgan Stanley report before the opening bell. Bank of America's results will include a $1.2 billion charge tied to a federal money-laundering penalty announced Tuesday evening, and its shares fell more than 2% in after-hours trading. ASML's investor call is scheduled for 9 a.m. Eastern.

What to watch

Three things are worth watching once the CPI report is out. First, the core monthly figure, and whether it lands closer to 0.1% or 0.3% rather than the consensus 0.2%. Second, how Treasury yields react, since the 10-year has been the main pressure point for stocks this autumn. Third, whether a hot reading revives talk of an October hike, which the rate market has largely priced out.

A reading in line with the forecasts would leave the debate about where it was: a pause in October, with December still open. A surprise in either direction would reset that debate within minutes.