Economic Update 10/16/26

Key Takeaways

• The PPI (Producer Price Index) for September showed an increase of 1.3% for the month.

• PPI continues to indicate inflation is high and might remain that way for a few more months.

• We anticipate inflation will remain somewhat higher than previously expected.

• We also anticipate the Fed will increase the Funds Rate one more time before year-end.

This is a short follow-up to my Economic Update earlier this week.

PPI Release

I mentioned in that report that the PPI (Producer Price Index) would be released on Thursday. This is a more forward-looking measure of inflation. Unfortunately, the numbers continue to indicate inflation is high and might remain that way for a few more months.

The PPI for September showed an increase of 1.3% for the month. This was well above the August gain of 0.5%, which was also the forecasted level for September. As we have seen recently, energy costs were the primary factor for the higher inflation level. On a trailing twelve-month basis, the PPI measurement showed an increase of 6.3%. Again, this was well above the August level of 5.6%.

The Core PPI, ex-food and energy, showed a gain of 0.7% for September and 5.0% on a year-over-year basis. Both releases were significantly above forecasted levels. Until we see an end to the military actions in the Middle East, allowing for a return to prior oil pricing at lower levels, I think we will continue to see inflation remain somewhat higher than previously expected.

Funds Rate Increase Probability

Given the above, I continue to think the Fed will increase the Funds Rate one more time before year-end. Hopefully, we will see this action at their October meeting later this month. It would be advantageous to get this behind us. However, The Fed may wait due to the mid-term elections in early November. They typically try and stay away from political activity.

As we did last month, we are looking at further reducing our equity holdings due to this scenario. Our equity returns for the year are well above the indices and we want to protect from potential downside movements. However, given the recent rise in interest rates, we have begun to slowly put monies back to work in fixed-income holdings in a very disciplined manner.

This is an unusual week and we don’t normally put out two Economic Updates. However, I think the importance of the inflation measurements released made it necessary. I hope you understand.

Have a good weekend and Go Big Red!!!