In October, energy-driven price increases lifted both major inflation gauges, third-quarter growth accelerated, and the Federal Reserve held rates steady after its September increase while markets priced a likely move in December. News coverage during the month focused on a sharp swing in long-term Treasury yields, a federal deficit approaching $2 trillion, and the AI industry's growing use of debt and equity markets to fund its expansion.

Headline CPI rose 0.6% in September on a seasonally adjusted basis, up from 0.4% in August, lifting the annual rate to 3.7% from 3.4%, its highest level since May. Core CPI, which excludes food and energy, rose 0.3% for a second straight month, while its annual rate climbed to 2.6% from 2.4%.

Gasoline drove the headline move, rising 9.1% and accounting for more than half of the monthly increase, as the energy index rose 5.2% after a 2.1% gain in August. Shelter firmed to 0.4% from 0.3%, and airline fares stood 22.4% above their level a year earlier, showing that price pressure extended beyond fuel itself.

Whereas CPI draws more public attention, the Fed's favored gauge, PCE, told a similar story when the BEA published it on October 29. Headline PCE prices rose 0.5% in September after 0.3% in August, taking the annual rate to 3.6% from 3.4%. Core PCE rose 0.3%, matching an upwardly revised August reading, and its annual rate edged up to 3.1% from 3.0%. The Fed's 2% target is defined in terms of PCE inflation, and both the headline and core PCE readings moved further above it.

Real GDP grew at a 3.4% annualized rate in the third quarter, according to the BEA's advance estimate released October 29, up from 2.2% in the second quarter. That second-quarter figure comes from the BEA's third estimate, published September 30, which revised growth up 0.7 percentage point from the 1.5% second estimate on stronger investment, consumer spending, and government spending.

The third-quarter acceleration was led by investment, chiefly inventories and information processing equipment, with further support from consumer spending and federal outlays. A decline in petroleum exports partly offset those gains. Real final sales to private domestic purchasers rose 4.9% after 4.6% in the second quarter.

For the fourth quarter, the Atlanta Fed's GDPNow model opened at 3.2% on October 29. Its final third-quarter nowcast of 3.3% had come in 0.1 point below the BEA's first estimate.

The FOMC held the federal funds rate in a target range of 3.75% to 4.00% at its October 27 to 28 meeting, following a quarter-point increase in September that was its first since 2023. The vote was 10 to 2, compared with 12 to 0 in September, as Governor Lisa Cook and Cleveland Fed President Beth Hammack preferred another quarter-point increase. The statement upgraded its description of economic activity to strong from solid.

Minutes of the September meeting, released October 7, showed most participants judged a further increase likely appropriate by year end. Ahead of the October decision, the CME FedWatch Tool assigned only a 7.2% chance of an October hike, down from 64.2% a month earlier. For the December 8 to 9 meeting, FedWatch showed roughly an 83% probability of a quarter-point increase immediately after the October press conference, easing to about 71% as of November 2.

Data for October nonfarm payrolls and the October unemployment rate was not yet available from approved sources at the time of writing. This section will be updated when official figures are released.

The most recent report, for September, released October 2, showed payrolls rising 29,000, compared with an average monthly gain of 45,000 over the prior 12 months. Revisions removed 60,000 jobs from the prior two months, lowering July to a decline of 10,000 from a gain of 21,000 and August to 133,000 from 162,000. The unemployment rate ticked up to 4.2% from 4.1%, within the 4.1% to 4.3% range in place since March.

Health care added 17,000 jobs, below its 12-month average of 33,000, construction added 11,000, and government shed 17,000. Average hourly earnings rose 0.1% to $37.81, slower than the 0.3% gain in August.

Reporting in October centered on the swing in long-term Treasury yields, a widening federal deficit, and the AI industry's move into public debt and equity markets.

At the start of October, the 10-year Treasury yield rose above 5.3%, its highest level since 2002, extending a global bond selloff driven by energy-related inflation worries since March. French borrowing costs approached 5% as investors questioned the country's debt load, and the average 30-year mortgage rate reached 7.40% on October 8, up from 7.28% a week earlier. U.S. commercial property buyers who agreed to deals before the September Fed hike began seeking price cuts before closing.

By mid-month, concern that higher borrowing costs could slow AI investment drew investors back into Treasurys. The 10-year yield posted its largest weekly decline since February, ending the week of October 16 near 5.10%, and slipped below 5% within the following week.

The federal deficit reached about $1.99 trillion in the fiscal year that ended September 30, according to Congressional Budget Office figures released in early October. That was 12% above fiscal 2025 and the largest since 2021, with spending up 6% to $7.4 trillion and revenue up 3% to $5.4 trillion. The deficit is expected to exceed 6% of GDP, compared with 5.8% a year earlier. Net interest on the public debt topped $1.1 trillion, up 11%, accounting for more than half of the deficit's increase. The recent jump in Treasury yields has yet to show up meaningfully in those costs, because higher rates apply only as older debt is refinanced.

Anthropic filed for an initial public offering on October 26, disclosing plans to list on the Nasdaq, with reports pointing to a raise of roughly $100 billion and a debut as soon as late November. Shortly after the filing, banks and private-credit firms, including Blackstone, completed $63 billion in commitments to finance AI chips for the company, among the largest AI infrastructure financings on record, after Broadcom's chief executive pressed lenders to finish the deal. The debt sits in a separate entity repaid by Anthropic's lease payments, and Broadcom is backing its senior, first-lien portion. Banks plan to sell about $22 billion of their loans to investment-grade bond investors next year, which could leave them with losses if rates rise sharply before then.