US Inflation Hits 3.7% as Fed Signals December Rate Hikes

The Bureau of Labor Statistics reported that U.S. inflation accelerated in September 2026, with the Consumer Price Index (CPI) rising 3.7% year-over-year, up from 3.4% in August. This marks more than five years of annual readings exceeding the Federal Reserve's 2% target. Core CPI rose 0.3% monthly, surpassing the 0.2% expectation, with broad-based increases in housing, healthcare, and services.

Price spikes were driven by a 9% jump in gasoline costs linked to the Iran war, alongside rising airfares and clothing costs. Additionally, heavy investment in AI and data centers increased semiconductor costs, leading to price hikes for electronics from companies like Apple and Nintendo.

In response, the Federal Reserve System raised interest rates to approximately 3.9% to cool spending. Market expectations for further tightening have surged, with December now pricing in near certainty for additional rate hikes. Federal Reserve Chairman Kevin Warsh and other officials are monitoring whether inflationary expectations have become entrenched among consumers.

The persistent cost of living has negatively impacted President Donald Trump's economic approval ratings ahead of next month's midterm elections. Investors are also weighing the risk that prolonged high yields may undermine equity valuations more than the delay of anticipated rate cuts.