US inflation exceeds all forecasts, markets plunge
US inflation beat every forecast on the board on Wednesday, sending Treasury yields and stock prices into a tailspin. The Consumer Price Index rose 0.6 percent in September from the previous month, matching analyst predictions, but the annual pace of 3.7 percent exceeded the 3.6 percent economists had expected. Core inflation, which strips out volatile food and energy items, accelerated to 0.3 percent for the month and 2.6 percent over 12 months, outpacing a 0.2 percent monthly and 2.4 percent yearly projection.
Drivers of the price surge
Gasoline prices led the monthly gains, surging 9.1 percent and accounting for more than half the overall increase. Diesel and other motor fuels jumped 11.9 percent on the month and 60.9 percent year over year. Shelter costs and overall services prices each rose 0.4 percent. Prices for computers and peripherals climbed 1.3 percent, a rise that reflects increased investment tied to artificial intelligence. With these specific categories posting strong numbers, the broader report suggests that price pressures remain embedded in the economy rather than being a temporary blip.
Wall Street reacted quickly to the data. The S&P 500 fell 86.51 points, or 1.1 percent, to 7,718.94, marking its largest single-day drop since July 29. The Nasdaq composite dropped 511.51 points, or 1.9 percent, to 26,692.87, its weakest session since July 23, 2026. The Dow Jones Industrial Average slipped 48.62 points, or 0.1 percent, to 51,621.48. The Russell 2000 index of smaller companies fell 1.9 percent.
Market shifts and futures
Traders recalibrated their expectations for Federal Reserve policy in response to the hotter-than-expected figures. The probability of a quarter-point rate increase at the Fed’s October meeting jumped to roughly 35 percent from 22.1 percent a day earlier, according to CME Group’s FedWatch tool. The report also increased the likelihood of at least one further rate hike before the end of 2026 to more than 90 percent, with a 40 percent chance that rates could end the year half a percentage point higher.
Yields on US Treasuries swung violently. The 10-year yield climbed above 5.32 percent intraday after touching a low of less than 5.17 percent before the release, eventually settling down more than 2 basis points at 5.19 percent. The 30-year yield fell more than 4 basis points to 5.517 percent. The two-year yield gained more than 1 basis point to 4.808 percent after reaching its highest level since September 29.
Within the tech sector, Nvidia dropped 3.2 percent, Broadcom fell 3.1 percent, and Advanced Micro Devices declined 5.7 percent. Oracle sank 8.8 percent, while CoreWeave tumbled 15.5 percent. A benchmark semiconductor index slid 4.3 percent, leaving it down roughly 12 percent over the past week. Steve Sosnick, chief strategist at Interactive Brokers, suggested the sector’s recent run-up made it vulnerable to volatility without fresh catalysts. “There’s just so much good news priced into the chip sector right now that you’re going to find it’s susceptible to meandering without some fresh catalysts,” he told CNN.
