Update 904 — September CPI up to 3%;
Roadmarks ahead for Ongoing Shutdown
This morning saw the release of new data showing that prices rose 3.0 percent on an annualized basis in September — the highest level since January. The price increase and the steady increases in recent months are the by-product of the Trump administration’s elevated tariffs reaching consumers and producers across the board. Of course, the government shutdown continued through its fourth week, with the Senate in stalemate and House GOP leadership virtually saying, “We won’t reconvene until the government is opened.”
In other economic policy developments, the national debt soared past $38 trillion on Thursday, the residue of persistent budget deficits and record-high interest costs on federal borrowing. Trump is offering a pittance in aid to farmers struggling due to retaliation from his tariffs compared to assistance levels for them in his first term, and announced a suspension in trade talks with Canada due to an ad attacking American tariffs.
Good weekends all…
Best,
Dana
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Headline
Inflation Rises to 3 Percent in September
Inflation, as measured by the Consumer Price Index (CPI), ticked up in September to its highest level since January as the Trump administration’s tariffs continue to push prices up in key sectors across the economy.
Prices rose by 0.3 percent on a monthly basis and by 3.0 percent annualized in September, according to the CPI report for the month released by the Bureau of Labor Statistics (BLS) this morning. This figure is up from an annualized increase of 2.9 percent in August and an annualized increase of 2.7 percent in both June and July. Core CPI – which excludes food and energy prices – rose by 0.2 percent on a monthly basis and by 3.0 percent on an annualized basis in September, slightly down from the 3.1 percent annualized increase in core CPI prices in July and August.
Prices in several tariff-sensitive sectors rose over the month. Among them, the prices of:
- apparel rose 0.7 percent and
- household furnishings and operations rose 0.4 percent.
Food prices rose by 0.2 percent on a monthly basis in September after rising 0.3 percent in each of the preceding two months. Meanwhile, energy prices rose 1.5 percent on a monthly basis in September, after rising 0.7 percent in August. Gasoline prices rose 4.1 percent over the month, while electricity prices and natural gas prices fell by 0.5 and 1.2 percent, respectively, over the month.
The September CPI report was originally scheduled to be issued last Wednesday, but its release was postponed due to the lapse in government funding. The BLS recalled some staff furloughed amid the ongoing government shutdown to compile the report, which was needed to enable the Social Security Administration (SSA) to arrive at the 2026 cost-of-living adjustment (COLA). The SSA announced a 2.8 percent COLA for 2026 earlier this morning, based partially on the September CPI data. The report was compiled using inflation data collected last month, prior to the government shutdown.
The new data comes ahead of the Federal Open Market Committee’s (FOMC) meeting next week, during which it will decide the immediate future level of interest rates. Committee officials cut rates by 25 basis points to the 4.0 to 4.25 percent range at their last meeting in September, after holding rates steady at the 4.25 to 4.5 percent range since last December.
The data shows that inflation is rising further above the Federal Reserve’s target of two percent, while the weakening labor market is softer than previously thought, placing the Fed’s dual mandate of stable prices and maximum employment in tension. The notable cooling in the labor market will almost certainly incline FOMC officials to cut rates by 25 basis points at their meeting on Tuesday and Wednesday.
Other Developments
Shutdown Continues, No Resolution in Sight
The federal government shutdown that began on October 1 continued through this week, with no signs of resolution in sight. This funding lapse is now the second-longest in the current budget era, trailing only the 2018-2019 35-day partial government shutdown during Trump’s first term.
Senate Republican leadership brought the House-passed continuing resolution (CR) to the floor again for the 11th and 12th times on Tuesday and Wednesday — it failed both times with no change in support, still at least seven votes short of those needed to reach cloture for a final vote.
As the effects of the shutdown continue to ripple across the country, Senate Republicans aimed to put more pressure on Democrats by bringing a bill to the floor that would pay excepted federal workers – those who are required to work without pay during a shutdown. The bill, sponsored by Senator Ron Johnson (R-WI) and titled the Shutdown Fairness Act, failed to reach the 60-vote cloture threshold yesterday in a 54-45 vote. Though the measure did get the support of three Democrats – Senators John Fetterman (D-PA), Jon Ossoff (D-GA), and Raphael Warnock (D-GA) – Democrats largely stood united in opposition, arguing that the Act would give the Trump administration too much unilateral discretion to decide which federal workers get paid during the shutdown.
As alternatives, Democratic Senators Chris Van Hollen (D-MD) and Gary Peters (D-MI) offered their own bills that would pay all federal workers, including the over 700,000 who have been furloughed and are not working. Senator Van Hollen’s bill, the True Shutdown Fairness Act, would have also barred the administration from carrying out reductions in force (RIFs) during the shutdown. Republicans blocked consideration of both bills.
The longer the shutdown persists, the more these issues – like pay for federal workers – will put pressure on both parties to cave on their current positioning. A couple of additional pressure points on the horizon include:
- ACA open enrollment (November 1) – Democrats’ central demand has been a permanent extension of enhancements to ACA premium tax credits (PTCs) that expire at the end of this year. Insurers have already set higher premiums for next year based on the expectation that the enhancements will expire as scheduled. ACA open enrollment will begin on November 1, and enrollees will begin to make tough choices about their health care. This has the potential to put more pressure on Republicans to negotiate on the ACA subsidies, as their constituents will start having to choose between sticking with their now-unaffordable health care plans or dropping coverage altogether.
- SNAP payments (November 1) – If the shutdown persists through next week, the 42 million Americans who rely on SNAP for critical food assistance may not receive their benefits for next month. This disruption will hit our vulnerable communities the hardest, amplifying hardship ahead of the holiday season.
- WIC (November 1) – The 7 million Americans who rely on the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) are at risk of losing their benefits if the shutdown continues. The program received temporary emergency funds this month, but several states will not have the money to pay out benefits on November 1.
While it is not yet clear how Congress will end the current stalemate and restore discretionary funding, it could only become more difficult for both parties to hold their current posture as the shutdown endures and repercussions spread and deepen.
The Senate will return on Monday to continue considering shutdown-related legislation. The House will remain in recess, having last voted on September 19.
U.S. National Debt Tops $38 Trillion
The United States’ gross national debt surpassed $38 trillion for the first time in history on Thursday, just over two months after clearing the $37 trillion benchmark. The debt is now growing at its fastest pace outside of crisis periods like the COVID-19 pandemic. The increasing national debt is fueled by high budget deficits, which are the result of revenues not keeping pace with government spending and interest payments on existing debt.
Despite the current administration’s – and many congressional Republicans’ – promise to curb the deficit, the Congressional Budget Office’s (CBO) preliminary budgetary estimates for the 2025 fiscal year (FY25) released two weeks ago paint a different, dismal fiscal picture.
According to the CBO, the U.S. ran a deficit of $1.8 trillion in FY25. Though revenues were slightly higher than expected, they were mostly offset by increased spending on mandatory programs and interest on the existing debt. Trump’s “silver bullet” for fixing the current fiscal crisis – tariffs – did very little to lower the deficit, accounting for only 3.7 percent of FY25 revenues ($195 billion). For perspective, the individual income tax raised $2.7 trillion in FY25, 51 percent of total revenues. Additionally, the Trump administration has promised to use tariff revenue for a myriad of purposes beyond paying down the national debt, including eliminating the income tax, bailing out farmers, and even sending rebate checks to Americans.
Spending increased by $220 billion (4 percent) last fiscal year – an increase that would have been $131 billion higher if the administration had not credited future student loan savings from the OBBB in September. This spending hike comes despite DOGE’s original promise to find $2 trillion in savings by slashing government programs and firing federal employees. But higher-than-expected spending on mandatory programs, which make up the lion’s share of federal outlays, and interest expenses boosted the deficit. In fact, debt financing surpassed $1 trillion for the first time in FY25 and is now a bigger draw on the federal budget than Medicare or Defense.
The Trump administration has done very little to rein in the deficit or national debt. And, as the $4.1 trillion deficit impact of the Republican reconciliation bill (OBBB) passed this summer continues to settle onto the federal ledger, the trajectory of deficits and the national debt will only worsen.
Trade Developments
Farmers Await Large Bailout
Amid the continued trade tensions and the government shutdown, American farmers face acute uncertainty this harvest season. On Thursday, the Department of Agriculture partially opened Farm Service Agency county offices. These offices will resume “core” operations, including processing farm loans, and resume access to some safety-net programs. While farmers pressure the administration for a large-scale bailout, the administration announced it would release $3 billion from the Commodity Credit Corporation (CCC) that had been frozen due to the government shutdown.
The CCC was used during the first Trump administration to provide $23 billion to American farmers who were impacted by Trump’s trade policies. Agriculture Secretary Brooke Rollins hinted at a big announcement to be debuted at the White House this week, which was rumored to be an aid package north of $10 billion, but never came to fruition.
The agriculture sector awaits a larger bailout to cover the losses from Trump’s trade war with China, which could require tens of billions of dollars. On top of China continuing to refuse to purchase American soybeans, President Trump this week said he wants the U.S. to import more beef from Argentina and for American farmers to lower their beef prices. The National Cattlemen’s Beef Association (NCBA) criticized Trump’s comments: “NCBA’s family farmers and ranchers have numerous concerns with importing more Argentinian beef to lower prices for consumers. This plan only creates chaos at a critical time of the year for American cattle producers, while doing nothing to lower grocery store prices.” While farmers struggle to make ends meet, the Trump administration continues to pursue a bailout of the Argentine economy – the very country whose exports are replacing ours.
No for Now to Canada
On Thursday, President Trump announced that the U.S. has halted trade talks with Canada. An advertisement purchased by the Province of Ontario criticized Trump’s tariffs by using audio from a 1987 address of then-President Ronald Reagan. In the ad, Reagan warned against protectionist legislation, saying: “Markets shrink and collapse; businesses and industries shut down; and millions of people lose their jobs.” The ad angered the President, and he announced trade talks with Canada were suspended, posting to Truth Social that Canada had “fraudulently” used the audio and was trying to interfere with the upcoming Supreme Court case regarding Trump’s IEEPA tariffs in November.