US inflation came in hotter than expected in September, sending Asian stocks and Wall Street lower and reviving bets on a Federal Reserve rate hike this month. The dollar retreated from an 18-month high as officials cooled October hike talk.
US consumer prices rose faster than expected in September, reviving fears that inflation is not yet beaten and sending global markets tumbling on Thursday. Labour Department data showed the core consumer price index up 0.3% on the month and 2.6% on the year, both above economists’ forecasts, while the headline rate climbed to 3.7%.
The numbers set off a broad selloff across equities. On Wall Street, the S&P 500 fell 1.1% and the Nasdaq Composite dropped 1.9% — a third straight day of declines — while a gauge of semiconductor stocks extended its losing streak to a sixth day. Shares of Oracle and CoreWeave were among the AI-linked names hit hardest, as the prospect of higher borrowing costs put the debt-fuelled AI buildout under fresh pressure.
Asia followed lower on Thursday. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.2%, led by a 5.6% plunge in South Korea’s KOSPI, while Japan’s Nikkei 225 dropped 1.3%. S&P 500 e-mini futures pointed to further losses, down 0.3%.
The inflation surprise briefly pushed market pricing for a Fed rate hike this month as high as 50%, but cautious remarks from Federal Reserve officials cooled those bets. Vice Chair for Supervision Michelle Bowman and San Francisco Fed President Mary Daly said the central bank could wait for a clearer picture before its October 27–28 meeting. “‘Maybe it was not hot enough to force the Fed’s hand for October,’ said Khoon Goh, head of Asia research at ANZ.”
CME FedWatch data put the implied probability of a 25-basis-point hike at the late-October meeting at 31.6%, up from 22.1% the day before.
The dollar slipped 0.1% to 102.06 on the dollar index, giving back most of the gains from Wednesday’s initial rally to an 18-month high. The euro bounced 0.3% to $1.1187, sterling recovered 0.2% to $1.3224, and the yen firmed 0.3% to 157.82. A rally in US Treasuries pushed the 10-year yield down to 5.1267%, a three-week low, while the 30-year stood at 5.4795%.
Asia’s gloom deepened after Australian employment unexpectedly fell by 39,300 jobs in September, against expectations of a 20,000 increase. China reported that factory-gate inflation heated up last month as commodity costs rose, lending the offshore yuan a small lift.
Why it matters
September’s reading complicates the Federal Reserve’s path. A hotter inflation number just weeks before the October meeting makes it harder for the central bank to justify holding rates steady, even as policymakers publicly urge patience. For households and businesses, the message is that borrowing costs may stay elevated for longer.
The selloff also exposes how rate-sensitive the AI investment boom has become. With tech giants and startups funding data centres with heavy borrowing, even modest shifts in rate expectations can wipe billions off valuations in a single session.
What’s next
Investors will parse US producer price and retail sales data due later on Thursday for further clues on price pressures. Fed Chair Kevin Warsh speaks in Bangkok, where markets will listen for any shift in the central bank’s tone. In Asia, AI chip giant TSMC reports third-quarter earnings later in the trading session, a key test of the AI trade’s resilience.
The decisive moment comes at the Fed’s October 27–28 meeting, when policymakers must choose between acting on the inflation surprise and waiting for more data.
