In September, the Federal Reserve raised its policy rate for the first time since 2023 as inflation held well above target, second-quarter growth was revised higher, and the September jobs report released in early October showed hiring slowing sharply. Beyond the official data, the month's most notable stories were mortgage rates rising above 7% as home sales slipped, and new estimates of the scale of the AI build-out.

Headline CPI rose 0.4% in August on a seasonally adjusted basis, up from 0.1% in July, and the annual rate held at 3.4% for a second consecutive month. Core CPI, which excludes food and energy, rose 0.3% after a 0.2% gain in July, while its annual rate eased to 2.4% from 2.5%.

Energy remained the main driver. Gasoline rose 3.9% in August and accounted for more than a third of the monthly increase, leaving the energy index up 16.3% over twelve months. Shelter firmed to 0.3% from 0.1% in July.

Whereas core CPI eased on an annual basis, the Fed's favored gauge showed no improvement. The PCE price index rose 0.3% in August after 0.1% in July and held at 3.4% year over year. Core PCE rose 0.2% after 0.1% and held at 3.0% year over year, a full percentage point above the Fed's 2% objective.

Real GDP grew at a 2.2% annualized rate in the second quarter of 2026, according to the BEA's third estimate released September 30, compared with 2.5% in the first quarter. The figure was revised up 0.7 percentage point from the 1.5% reported in the second estimate, primarily reflecting higher investment, consumer spending, and government spending. First-quarter growth was itself raised to 2.5% from the previously published 2.1% as part of BEA's annual update.

For the third quarter, the Atlanta Fed's GDPNow model stood at 3.7% as of its October 1 update. The model had cut its estimate to that level on September 30 from 5.0% on September 25, as the nowcast for consumer spending growth fell to 3.5% from 4.2% and the projected drag from net exports deepened. The October 1 update left the estimate unchanged.

At its September 15 and 16 meeting, the FOMC voted 12 to 0 to raise the federal funds target range by a quarter point to 3.75% to 4.00%, its first increase since July 2023. The statement described inflation as elevated and presented the increase as supporting a timelier return to the 2% goal. The median projection for the end of 2026 rose to 4.1% from 3.8% in June, consistent with one more quarter-point increase.

The next meeting is scheduled for October 27 and 28. As of October 4, the CME FedWatch Tool showed a 22.1% probability of a quarter-point hike, down from 64.2% a week earlier, implying roughly 78% odds of no change.

Nonfarm payrolls rose 29,000 in September, below the prior 12-month average monthly gain of 45,000 and well short of the Dow Jones consensus of 84,000. August was revised down by 29,000 to 133,000 from 162,000, and July was revised down by 31,000 to a loss of 10,000, leaving the two months a combined 60,000 lower than previously reported. Private employers added 46,000, down from 89,000 in August, while government payrolls declined.

The unemployment rate rose to 4.2% from 4.1%, against a consensus for no change. Health care added 17,000, below its 33,000 monthly average over the prior year. Construction added 11,000 and manufacturing 9,000. Average hourly earnings rose 0.1% to $37.81 and are up 3.0% over twelve months.

September's most notable storylines beyond the official data releases included the return of 7% mortgage rates, the scale of the AI build-out, and a settlement that cleared Paramount's merger with Warner Bros. Discovery.

The average 30-year fixed mortgage rate in Freddie Mac's weekly survey reached 7.03% in late September, its first reading above 7% since early 2025, up from 6.76% two weeks earlier. Mortgage rates track the 10-year Treasury yield, which rose to its highest level since 2007 in mid-September and kept climbing, ending the month at 5.29%.

Higher rates hit a housing market already in its fourth year of stagnant sales. Existing-home sales fell 2% in August from July to a seasonally adjusted annual rate of 3.98 million, the lowest in more than a year. Prices kept rising anyway, with the national median existing-home price up 1.6% from a year earlier to $429,100.

Total U.S. investment in data centers and related infrastructure is projected to reach $10.3 trillion from 2025 to 2032, according to estimates published by the Brookings Institution. That works out to about 3.6% of GDP per year, a larger share than the country devoted to the railroads, the interstate highway system, or the build-out of the internet. Goldman Sachs estimates that AI-related investment alone will reach 1.9% of GDP in 2026, a level not seen for a single new industry since the railway boom of the late 19th century.

The effects are already visible. Through July, private data-center construction totaled $37 billion, about $9 billion more than in the first seven months of 2025, according to Commerce Department data, while all other private construction ran about $46 billion below year-earlier levels. The risk is in the financing. A growing share of the spending is funded with debt, often through off-balance-sheet vehicles with little public disclosure, so an abrupt slowdown could spread well beyond the technology sector.