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The Bureau of Labor Statistics (BLS) reported that headline inflation accelerated to 3.7% year-over-year in September, slightly exceeding market expectations in light of rising energy prices. In addition, markets expected inflation to broaden beyond energy, with core inflation also coming in hotter than expected at 2.6% YoY.  Today’s chart breaks down the contribution of key categories to CPI momentum (4-month moving average). While the crack spread (a measure of refinery margins) stabilized and crude oil prices increased, there is little evidence of widespread pass-through to a wide array of prices. Outside energy, inflation is running at a 2.1% annualized pace since mid-year, largely in line with the Federal Reserve’s 2% target. With oil prices remaining above $100 / barrel for a protracted period, markets continue to price in further rate hikes, expecting four more by mid-2027. We believe that the market is misreading the Fed’s hawkish rhetoric. Typically, the Fed pivots when accelerating core inflation coincides with a strong labour market, yet today’s data is not particularly convincing in this regard.

Consumer sentiment was little changed this month, inching down a scant 1.8 index points from September. While year-ahead expectations for personal finances and business conditions crept up slightly, buying conditions for durables plummeted amid high prices and borrowing costs. Increases in sentiment among Democrats and Republicans were offset by a decline among independents this month. Overall, sentiment for lower-income consumers and those with smaller stock portfolios dropped steeply this month, groups that have fewer resources to weather increases in prices. Frustration over cost-of-living continues to mount, as consumers across the political spectrum believe that the trajectory of the economy has weakened since the beginning of the year. Year-ahead inflation expectations ticked up from 4.6% last month to 4.7% this month. …Long-run inflation expectations also stepped up from 3.4% in September to 3.5%. 

SEATTLE — U.S. pending home sales are down to their lowest level since spring 2014—with the exception of April 2020, when the onset of the pandemic ground the housing market to a halt. This is according to a new report from Redfin.  Pending home sales declined 4% from a month earlier in September on a seasonally adjusted basis—the biggest monthly drop in more than three years. This is a real-time indicator of what’s happening in the housing market; fewer homes went under contract in September largely because mortgage rates rose steadily, surpassing 7% by the end of the month. …For the first time in three years, pending home sales declined in all 50 of the most populous U.S. metros. The last time that happened was September 2023, which was also the last time mortgage rates surpassed 7% for a sustained period. 

Existing home sales rose after three months of declines as improved inventory gave buyers more negotiating power. As buyers wait for rate relief, homes are sitting on the market longer and for-sale inventory reached the highest level in over a decade. Despite the increase, August and September sales remained the slowest this year. With mortgage rates back above 7% since mid-September, home sales are likely to stay sluggish over the next few months. Total existing home sales, including single-family homes, townhomes, condominiums, and co-ops, rose 1.5% to a seasonally adjusted annual rate of 3.99 million in September, according to the National Association of Realtors (NAR). This marked the second-lowest level since July 2025 and only the third time since October 2024 that sales dropped below 4.0 million. On a year-over-year basis, sales were 2.2% lower than a year ago