U.S. consumer prices rose faster than expected in September. For Stock Trader Network Chief Economist Blu Putnam, he’s surprised why anyone expected anything else.
The Consumer Price Index climbed 3.7% on an annual basis in September, topping the 3.6% consensus estimate, while monthly prices rose 0.6% after a 0.4% increase in August. Speaking during PreMarket Prep with Stock Trader Network on Wednesday morning, Putnam pointed to energy markets that have had to absorb overlapping geopolitical shocks.
“My big surprise is why everyone is surprised,” Putnam said. “It is a slightly hot number, but that should’ve been the expectation.”
Oil and gasoline prices have remained elevated as conflict in the Middle East and Eastern Europe continues to strain supply expectations. Putnam said that fighting between Yemenis and Saudi Arabia has added an “extra war” on top of the existing conflicts involving Ukraine and Iran, leaving energy costs with little room to cool.
The September reading arrives a month after the Federal Reserve raised interest rates for the first time since July 2023, forced back into tightening mode by sticky inflation, rising energy costs and demand tied to the AI boom. Following Wednesday’s print, the CME FedWatch tool put the odds of another rate hike at 34.9%, with a 65.1% probability of no change.
Futures traders are treating the next move as an increasingly sure bet, while policymakers have signaled restraint. New York Fed President John Williams told Bloomberg on Tuesday that he had not changed his view that “it may be appropriate to have one more rate hike,” adding that he saw no reason at this time to believe the central bank would need to do more before seeing how 2027 unfolds.
Putnam sees a much steeper path ahead, telling Stock Trader Network listeners that two to three more rate hikes before the end of the year are “definitely in the cards,” a view that sits beyond what Fed commentary currently reflects.
Meanwhile, Goldman Sachs argues that one of the economy’s newer price pressures is already running out of steam.
In a Wednesday note, Goldman Sachs economists Rindels and David Mericle wrote that inflation driven by AI demand is likely near its peak. They estimate that AI-related price pressures are currently adding about 45 basis points to core PCE inflation, with roughly half of that figure reflecting cost pressures and the rest coming from statistical mismeasurement.
The bank expects that impact to peak at 50 basis points by the end of this year before falling to 10 basis points by the end of 2027. “The impact of AI demand on inflation is meaningful but moderate, still comes in large part from mismeasurement, and is likely near its peak,” the economists wrote.
Goldman expects the pressure to ease next year mainly because its sector analysts see memory and computer prices growing at a slower pace, “which should reduce both genuine cost pressures and the impact of mismeasurement in the software and accessories category.”
That forecast offers the Fed a break on the tech side of the ledger, though it does not solve the problem showing up in Wednesday’s headline data. A slowdown in memory and computer prices can trim basis points from core PCE over the next year; it cannot lower the price of crude oil or settle the conflicts pushing fuel costs higher today.
Traders watching the CME FedWatch tool see a central bank that may soon be done tightening, aided by the prospect that the AI boom is losing its inflationary bite.
