Year-over-year inflation held steady at 3.7 percent in September, a positive sign for price stability that may soothe the Federal Reserve as it weighs new interest rate hikes. 

The consumer price index (CPI) rose 0.4 percent from August to September. The final numbers came in slightly above economist projections, but below the 0.6 percent increase in August.

Good to Know:

• The Fed is still projecting one more interest rate hike before the end of the year, but markets aren’t so sure.
  
  
• The odds the Fed holds interest rates steady is 89.4 percent, prediction algorithm Fedwatch by financial company CME predicted as of Thursday morning.
  
  
• The current 22-year benchmark range is 5.25 to 5.5 percent.

The latest inflation data has implications beyond a potential interest rate hike. 

Economists are concerned that the three-month core inflation average is trending upward again even as core CPI, considered a more reliable indicator than headline inflation, has steadily declined since March. 

This is the “[second] month in a row of elevated core inflation … following [two] good months. Last month you could tout that the 3-month annualized growth rate was 2.4 percent and inflation was gone. Now that 3-month annualized growth rate is 3.1 percent [and] a bit more reason to be cautious,” Harvard University economist Jason Furman, the former chair of then-President Obama‘s Council of Economic Advisers, commented online Thursday morning. 

But that three-month average is still far lower than it was last year, LinkedIn principal economist Guy Berger noted, adding, “Hopefully [it’s] just a bump in the road.” 

Meanwhile:

• Shelter costs also continue to outstrip headline inflation. 
  
  
• Housing costs were up 7.2 percent annually in August, compared with the headline number of 3.7 percent and 4.1 percent rise in the core.
  
  
• The shelter index peaked at 8.2 percent in March. It fell just 0.1 percent annually from August to September. 

“The slight uptick in month-over-month core CPI inflation … is owing entirely to shelter (housing). But a sustained drop in shelter inflation is around the corner, given that market rent growth remains tepid,” Preston Caldwell, an economist with Morningstar, said in analysis. 

The housing sector is one of those most closely tied to interest rate hikes. The 30-year-fixed rate mortgage, at a 20-year high of 7.5 percent, has moved with the federal funds effective rate since 2021. 

The Hill’s Tobias Burns has more here.