September inflation ticked up, but Fed still expected to cut rates
United States inflation edged higher in September, but the Federal Reserve appeared set to move ahead with a rate cut next week, offering a glimmer of hope for mortgage professionals and borrowers facing persistent affordability challenges.
The Consumer Price Index (CPI), released Friday after a shutdown-induced delay, rose 0.3% month-over-month and 3.0% year-over-year—the fastest annual pace since January, according to the Bureau of Labor Statistics.
Core inflation, which strips out food and energy, also increased 0.2% on the month and 3.0% annually.
Both measures came in slightly below economists’ expectations, providing some reassurance to markets that inflation is not accelerating out of control.
“Inflation edged higher in September, just as the Federal Reserve prepares to lower interest rates again next week in an effort to support a cooling labor market,” said First American senior economist Sam Williamson.
“Despite the uptick, the Fed is still expected to prioritize addressing growing signs of labor market softness over further progress against inflation and cut rates at its meeting next week. However, officials remain divided on how aggressively to ease, making a December cut far from certain and dependent on incoming data,” Williamson said.
Mortgage markets responded swiftly to the CPI release, with the 10-year Treasury yield slipping below 4%.
“Today's CPI release brings a bit of relief for home buyers. The average 30-year, fixed rate now sits around 6.2%—the lowest since last September. A drop below 6.1% would mark the most affordable level since September 2022, when rates were surging,” Williamson said.
Shutdown delays data, complicates Fed’s outlook
The CPI report was the only major economic data released this month, as the government shutdown forced the BLS to suspend most operations.
The data was published to meet Social Security cost-of-living adjustment deadlines, but the absence of broader economic indicators has left the Fed with limited visibility ahead of its policy meeting.
While inflation remains above the Fed’s 2% target, the central bank’s focus has shifted toward signs of labor market weakness. Fed chair Jerome Powell recently acknowledged that the labor market is no longer “very solid,” citing a slowdown in hiring and persistent uncertainty.
A Reuters poll of economists points to two Fed rate cuts before year-end, driven by weak labor data and persistent inflation.https://t.co/vyT0LIs1IJ
— Mortgage Professional America Magazine (@MPAMagazineUS) October 23, 2025
Tariffs and sector trends shape inflation outlook
Rising gasoline prices, up 4.1% in September, were the largest contributor to the monthly CPI increase, while food prices moderated.
Apparel and home furnishings also saw price gains, reflecting ongoing impacts from tariffs and supply chain adjustments.
However, used car prices fell 0.4%, and shelter costs rose just 0.2%, signaling some easing in key categories.
Industry analysts remain cautious about persistent inflation risks, especially if tariffs and supply chain disruptions intensify.
“The immediate dangers from Trump 2.0 tariff policies have not yet fed through to inflation overall,” wrote Christopher Rupkey, chief economist at FwdBonds, in a note to investors.
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