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Stock markets celebrated, but bond markets were cautious.
Last week, the Consumer Price Index (CPI) showed that inflation for September was lower than economists had anticipated. Both headline and core inflation (the latter excludes volatile food and energy prices) rose 3.0 percent year over year.
“While the September figure is still a full percentage point above the Fed’s 2 [percent] target—and the highest level of inflation seen since January—it signals that the path of price growth is modest enough to allow for additional rate cuts,” reported Megan Leonhardt of Barron’s.
Investors had been concerned that a jump in inflation might cause the Federal Reserve (Fed) to stop lowering the federal funds rate. The better-than-expected inflation report gave markets confidence the Fed will continue to lower the fed funds rate this year.
Stock markets hit new records
Markets rose after the CPI was released. “The Dow Jones Industrial Average closed north of 47,000 for the first time on Friday…The Dow hit its second thousand-point milestone of 2025 after crossing the 46,000 threshold 31 trading days ago, according to Dow Jones Market Data. The S&P also notched its best week since Aug. 8,” reported Connor Smith of Barron’s.
United States Treasuries rallied following the inflation news, too, but retreated after S&P Global released the Flash US Composite PMI® Output Index, reported Ye Xie of Bloomberg. The Index provides information about the state of U.S. manufacturing and services. A reading above 50 signals economic expansion, while a number below 50 suggests contraction.
In October, the preliminary composite reading was 54.8, a three-month high and well above September’s 53.9 reading. Indexes measuring activity in the manufacturing and services sectors both accelerated from September to October.
Faster growth is good news; however, bond investors recognized that it could affect the Fed’s rate-cut decisions. The Fed lowers the federal funds rate to stimulate the economy. If the business activity is growing, stimulus may be unnecessary.
Social Security benefits will be higher in 2026
CPI data was calculated, despite the government shutdown, because it is required to determine the cost-of-living increase for Social Security. In 2026, benefits will be 2.8 percent higher, the equivalent of about $56 per month on average, according to the Social Security Administration blog.
By the end of the week, major U.S. stock indexes were higher. Yields on many U.S. Treasuries with longer maturities moved higher over the week.
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