The country's economic health is confused by some economic data releases.
The inflation report for September was clear about the problems to come. The bleak picture of the country's near-term future was painted by nearly every detail in the book.
The consumer price index rose 0.4% in September and is up 8.2% for the year. Excluding volatile food and energy prices, core inflation rose 0.6% last month, with a year-over-year increase of 6.6%. Since 1982, that's the fastest core-price growth.
The report's details were just as bad. Shelter inflation replaced food and gas prices as the biggest driver of headline inflation. Medical care and transportation services saw their inflation go up during the month.
The new data makes the fight against inflation look futile for the Fed. The stock market has already been hit hard by the prospect of further Fed tightening. The White House now has to deal with a bunch of negative inflation headlines just weeks before the election.
If the Fed slows its hiking cycle, investors cheer and the stock market rallies. There are signs that the central bank will keep raising interest rates.
Thursday's trading session met that precedent. The S&P 500 plummeted as much as 2.4% after markets opened, but those losses were reversed by midday and the stock market rebounded into the afternoon.
The Fed's November and December meetings are now being priced in by options traders. Economic growth would be stifled by these moves.
Stock investors will face a steep uphill climb through the rest of this year and the next. Higher rates make borrowing more expensive for companies, which slows firms' profit growth, and traders will set an even higher bar for companies to clear when they announce their quarterly earnings.
The markets will be hurt by these numbers. The coming earnings season would have to be doubly strong in order to counterbalance the Fed's aggressiveness. Being strong enough to reverse this tide will be a difficult task.
After several large rate hikes, trading is likely to get more volatile.
It makes the Fed's decision process much easier because of the SeptemberCPI read.
The Fed is expected to raise rates by three-quarters of a percentage point in November and by half a point in December, according to projections made in September. Heading into Thursday morning, market positioning mirrored the projection.
In a matter of minutes, the outlook was changed by the inflation data. Markets are bracing for back-to-back 0.75-point hikes through the end of the year.
Seema Shah, the chief global strategist at Principal Asset Management, said that there can't be anyone left in the market who thinks the Fed can raise rates by less than 75 basis points. The combination of slow growth and rising inflation isn't something the Fed wants to see.
With the Fed indicating that their plans are not complete, interest rates are likely to go up.
The Thursday report was the last chance for Democrats to get a surprise inflation boost.
They received a worst-case scenario. Republicans who are favored to wrest control of the House now have a new talking point that is relevant to all Americans, and as campaigns enter their final sprints, surging inflation could hurt Democrats' hopes to keep the Senate.
Two years before the elections, the Biden administration is likely to be dull. President Joe Biden's legislative agenda was able to be passed despite the fact that many packages were slimmed down. When inflation was on the rise, the policies put more cash into the economy.
If the Republicans win the House, they will push for spending cuts and reduce the deficit. The GOP will try to reverse many of the White House's recent victories until inflation shows signs of abating.
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