October 18, 2026

[AI x Finance] US CPI at 3.7%, is the October rate hike a done deal? — Changing the order in which we look at the Fed

Conclusion

For those of us living in Japan, what we want to pay attention to is not just the Fed’s interest rates, but the gap between them and Japan’s interest rates. The Japan-US interest rate differential and expectations for its future path affect import prices and our daily lives through the yen exchange rate. On the other hand, interest rate hikes in Japan also relate to domestic borrowing rates. A rise in US prices alone does not determine the next rate hike or a weaker yen; it is necessary to look at both the Fed and the Bank of Japan.

Main Text

US prices have turned upward again. However, this does not mean that an October rate hike is a done deal. This week, it is important to read the fact that “prices have risen” separately from the expectation of “how the Fed will act.”

The Consumer Price Index (CPI) for September, released on October 14, rose 3.7% from the same month last year. This is an expansion from the 3.4% growth in August. It also rose 0.6% from the previous month, a result that is concerning for those who were hoping for prices to settle down. [1]

Looking at the details, gasoline rose 9.1% from the previous month, accounting for more than half of the monthly increase in the headline index. Meanwhile, the core index, which excludes food and energy, also rose 0.3% from the previous month and 2.6% from the previous year. It is too early to dismiss this as just an energy issue. [1]

It is easy to confuse the relationship between price figures and policy interest rates here. If the CPI rises, it becomes a factor that warrants caution regarding additional rate hikes. However, it is not a mechanism where the policy interest rate automatically rises the moment the figures are announced.

On September 16, the Fed raised its target range for the federal funds rate by 0.25 percentage points to 3.75–4.00%. This is a figure that has actually been decided. The next meeting is October 27–28. The conclusion for that has not yet been reached. [2][3]

In a speech on October 8, Governor Waller expressed the view that an additional rate hike would be necessary if things go as expected, while also stating that it is not necessary to raise rates consecutively at every meeting. However, this was a statement made before the CPI announcement and is not a response to the current results. [4]

That is precisely why the order in which you read things is important. The first thing to check is the current interest rate decided at the meeting. Next, look at the new figures for prices and employment. Finally, see if the policy officials’ explanations have changed in response to those figures. This is to avoid reading old statements as reactions to new statistics.

The “rate hike probability” that appears in the news also becomes easier to understand with this distinction. That is an expectation calculated from market prices, not a decision or promise by the Fed. When citing figures, I want to verify even the date and time of the estimate.

So, how does this relate to Japan? The target range decided by the Fed on September 16 was 3.75–4.00%. The Bank of Japan also changed its monetary policy control policy on September 18, and is currently guiding the uncollateralized overnight call rate to around 1.25%. Simply comparing short-term policy rates, the US is 2.50–2.75 percentage points higher than Japan. This is a comparison between policy rates, and I want to distinguish it from the market interest rate differential of government bonds or the investment yields available to individuals. [2][5]

If other conditions are the same, the view that US interest rates are higher than Japan’s and that the gap will widen can be a motive to buy dollars and sell yen. Conversely, the view that the gap will narrow due to US rate cuts or Japanese rate hikes can be a factor for a stronger yen. However, exchange rates are not determined solely by current policy interest rate differentials, but are also influenced by future interest rate expectations, market interest rates, and investor risk appetite. [6]

If the yen weakens, dollar-denominated imports tend to become more expensive in yen terms, leading to a burden on households and companies through fuel and raw materials. On the other hand, since Bank of Japan rate hikes also relate to domestic borrowing and deposit interest rates, it cannot be said that they are uniformly favorable to households just because they are a factor for a stronger yen. When home loan repayments will change also depends on the financial institution and the type of interest rate contracted.

What I weigh heavily from this week’s figures is the point that “the re-acceleration of prices can no longer be ignored.” On the other hand, whether to raise rates in October or wait until another meeting is a judgment for the future. Strong prices and the timing of a rate hike are not the same question.

There is also a difference between a lower rate of price growth and prices themselves returning to previous levels. Even if inflation slows down, the rise in the cost of living is not canceled out. Monetary policy attracts attention because it relates not only to immediate figures, but also to whether that burden will be prolonged.

When reading the next news, try writing down three things: “decided,” “new statistics,” and “expectations.” Where do you place the figures in that article? Just doing that makes it easier to grasp the current state of interest rates without being swayed by the strength of the headlines.

Conclusion — English

For people living in Japan, the key is not just the Fed’s policy rate but its gap with Japan’s rate. The U.S.–Japan interest rate differential and expectations about its future path affect import prices and daily life through the yen exchange rate. Higher rates in Japan also matter for domestic borrowing costs. A rise in U.S. inflation alone does not determine the next rate decision or guarantee a weaker yen: both the Fed and the Bank of Japan need to be watched.

Conclusion — Korean

What we living in Japan should pay attention to is not just the Fed’s interest rates, but the gap with Japanese interest rates. The interest rate differential between the US and Japan and its future outlook affect import prices and our daily lives through the yen exchange rate. Meanwhile, interest rate hikes in Japan are also related to domestic loan rates. Since the next rate hike or the weakening of the yen is not decided solely because US prices have risen, we must look at the Fed and the Bank of Japan together.