As early voting begins this week, the data also comes at a precarious time for Republicans defending majorities in the House and Senate. Polls consistently find that inflation and the high cost of living are the top issues this year for voters in both parties.
Stocks fell sharply on Wednesday. Before the data was released, market odds showed traders expected the Federal Reserve to wait until December to raise rates. After the data was released, the odds of an increase in October rose above 55%.
The Nasdaq Composite closed down 1.8% and the S&P 500 closed down 1.1%. The Russell 2000 index, which tracks small and midsize companies, slipped 1.9%. The most shorted stocks were interest rate sensitive, such as those in the technology and industrial sectors, which are involved in the ever-expanding construction of AI data centers.
The prospect of higher rates also helped push bond yields higher early, but the yields that have the biggest influence on consumer borrowing rates had returned to a steady line by the end of the day.
A Fed rate hike could add even more pressure on consumers, raising the cost of other forms of credit such as credit cards, personal loans and auto loans.
The artificial intelligence boom also reared its ugly head last month, as categories that track the price of computers, software and accessories saw record year-over-year price increases.
Before Wednesday’s report, economists were monitoring recent price hikes for Apple products and looking to see if they had an impact on the overall inflation figure. The smartphone category grew 0.4% month-over-month.
Airfares were also closely watched, given the surge in jet fuel prices. Prices in this category increased 0.2% from August, posting their smallest increase since June.
Despite high prices and consumers saying they are stretched to the limit, data shows spending has remained strong.
On Wednesday, Bank of America CEO Brian Moynihan said customers continued to spend at a rate 5% higher than last year.
“While much has been said about the AI boom, the consumer remains the driver” of much of the economy’s dynamics, Citigroup CEO Jane Fraser said Tuesday.
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